<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 1, 1997
REGISTRATION NO. 333-27523
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PUEBLO XTRA INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6719 65-0415593
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
1300 N.W. 22ND STREET
POMPANO BEACH, FLORIDA 33069
(954) 977-2500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
WILLIAM T. KEON, III
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PUEBLO XTRA INTERNATIONAL, INC.
550 BILTMORE WAY, 9TH FLOOR
CORAL GABLES, FLORIDA 33134
(305) 442-3407
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE OF PROCESS)
------------------------
COPY TO:
DONALD B. BRANT, JR.
MILBANK, TWEED, HADLEY & MCCLOY
ONE CHASE MANHATTAN PLAZA
NEW YORK, NEW YORK 10005
(212) 530-5618
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY , 1997
PROSPECTUS
OFFER TO EXCHANGE
9 1/2% SERIES C SENIOR NOTES DUE 2003
FOR ALL OUTSTANDING
9 1/2% SERIES B SENIOR NOTES DUE 2003
OF
[PUEBLO XTRA LOGO]
PUEBLO XTRA INTERNATIONAL, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED
------------------------
Pueblo Xtra International, Inc., a Delaware corporation (the "Company"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), which together with the Prospectus constitute the
"Exchange Offer," to exchange up to an aggregate principal amount of $85,000,000
of its 9 1/2% Series C Senior Notes Due 2003 (the "Exchange Notes") for up to an
aggregate principal amount of $85,000,000 of its outstanding 9 1/2% Series B
Senior Notes Due 2003 (the "Initial Notes"). The terms of the Exchange Notes are
identical in all material respects to those of the Initial Notes and to those of
the Company's 9 1/2% Senior Notes Due 2003 (the "Existing Notes"), except for
certain transfer restrictions, registration rights and penalty interest
provisions relating to the Initial Notes. The Exchange Notes will be issued
pursuant to, and entitled to the benefits of, the Indenture (as hereinafter
defined) governing the Initial Notes. The Exchange Notes and the Initial Notes
are sometimes referred to collectively as the "Notes."
The Exchange Notes will be senior unsecured obligations of the Company and
will rank in right of payment equally with all other existing and future senior
unsecured obligations of the Company, including the Existing Notes. Because the
Company is a holding company that conducts all of its business through
subsidiaries, all existing and future liabilities of its subsidiaries will be
effectively senior to the Notes. As of January 25, 1997, on a pro forma basis
after giving effect to the Refinancing Plan (as hereinafter defined), the
Company would have had approximately $206.2 million of indebtedness outstanding
other than the Notes, of which $180.0 million would have been the Existing Notes
and $26.2 million would have been senior secured indebtedness comprising
guarantees of the total outstanding indebtedness of the Company's subsidiaries.
In addition, after the issuance of standby letters of credit in the amount of
$23.3 million, the Company's operating subsidiary would have had availability of
$41.7 million under the New Bank Credit Agreement (as hereinafter defined),
under which all borrowings are guaranteed by the Company. The terms of the
Indenture will permit the Company and its subsidiaries to incur additional
indebtedness, subject to certain limitations. See "Description of Notes."
The Exchange Notes will bear interest from April 29, 1997, the date of
issuance of the Initial Notes that are tendered in exchange for the Exchange
Notes (or the most recent interest payment date to which interest on such Notes
has been paid), at the rate of 9 1/2% per annum and will be payable
semi-annually on February 1 and August 1 in each year, commencing on August 1,
1997.
(Continued on Next Page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 1997.
<PAGE> 3
(Continued from Cover)
The Company will accept for exchange any and all Initial Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time,
on , 1997, unless extended by the Company in its sole discretion (the
"Expiration Date"). Tenders of Initial Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date. In the event the
Company terminates the Exchange Offer and does not accept for exchange any
Initial Notes with respect to the Exchange Offer, the Company will promptly
return the Initial Notes to the holders thereof. The Exchange Offer is not
conditioned upon any minimum principal amount of Initial Notes being tendered
for exchange, but is otherwise subject to certain customary conditions. The
Initial Notes may be tendered only in integral multiples of $1,000.
The Initial Notes were originally issued and sold on April 29, 1997 in a
transaction not registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon the exemptions provided in Rule 144A,
Regulation S and Regulation D under the Securities Act. Accordingly, the Initial
Notes may not be reoffered, resold or otherwise pledged, hypothecated or
transferred in the United States unless so registered or unless an applicable
exemption from the registration requirements of the Securities Act is available.
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement dated
April 29, 1997 (the "Registration Rights Agreement") between the Company and
NationsBank Capital Markets, Inc. and Scotia Capital Markets (USA) Inc. (the
"Initial Purchasers"), with respect to the sale of the Initial Notes. The
Company is making the Exchange Offer in reliance on the position of the staff of
the Securities and Exchange Commission (the "Commission") as set forth in
certain no-action letters addressed to other parties in other transactions.
However, the Company has not sought its own no-action letter and there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer as in such other circumstances. Based upon
these interpretations by the staff of the Commission, the Company believes that
Exchange Notes issued pursuant to this Exchange Offer in exchange for Initial
Notes may be offered for resale, resold and otherwise transferred by a holder
thereof other than (i) a broker-dealer who purchased such Initial Notes directly
from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a person that is an "affiliate" (as
defined in Rule 405 of the Securities Act) of the Company without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holder's business and that such holder is not participating, and has no
arrangement or understanding with any person to participate, in the distribution
of such Exchange Notes. Holders of Initial Notes accepting the Exchange Offer
will represent to the Company in the Letter of Transmittal that such conditions
have been met. Any holder who participates in the Exchange Offer for the purpose
of participating in a distribution of the Exchange Notes may not rely on the
position of the staff of the Commission as set forth in these no-action letters
and would have to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction.
Each broker-dealer (other than an "affiliate" of the Company) that receives
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Initial Notes as a result of market-making
activities or other trading activities and will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Initial Notes where such Initial Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company intends, for a period of 180 days after
the Expiration Date, to make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
There has not previously been any public market for the Initial Notes. The
Company does not intend to list the Exchange Notes on any securities exchange or
to seek approval for quotation through any automated quotation system. There can
be no assurance that an active market for the Exchange Notes will develop. See
"Risk Factors -- Absence of Public Market for the Notes."
Upon a Change of Control (as hereinafter defined), the Company will be
required to make an offer to repurchase all outstanding Notes at 101% of the
principal amount thereof plus accrued and unpaid interest thereon to the date of
repurchase. There can be no assurance that the Company will have sufficient
funds to repurchase Notes upon the occurrence of a Change of Control. See
"Description of Notes -- Repurchase of Notes upon a Change of Control."
The Company will not receive any proceeds from the Exchange Offer; however,
pursuant to the Registration Rights Agreement, the Company will pay the expenses
incident to the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF INITIAL NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES AND BLUE SKY LAWS OF SUCH JURISDICTION.
ii
<PAGE> 4
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-4 (the "Registration Statement") under the Securities Act, with respect to the
Exchange Notes. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain items of which are contained in schedules and exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports and other information with the
Commission. Reports and other information concerning the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549; The Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can be obtained from the Public Reference Room of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such material may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov.
The Company is a Delaware corporation. Its executive offices are located at
1300 N.W. 22nd Street, Pompano Beach, Florida 33069, and its telephone number is
(954) 977-2500.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of the Company, which have been filed with the
Commission, are hereby incorporated by reference in this Prospectus:
Annual Report on Form 10-K for the year ended January 25, 1997.
Quarterly Report on Form 10-Q for the quarter ended May 17, 1997.
Current Reports on Form 8-K filed April 11, 1997 and April 18, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Exchange Offer shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the respective dates
of filing of such documents. Any statement contained in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
THE COMPANY IS DELIVERING WITH THIS PROSPECTUS, TO EACH PERSON TO WHOM THE
PROSPECTUS IS SENT OR GIVEN, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JANUARY 25, 1997, INCORPORATED HEREIN BY REFERENCE. THIS
PROSPECTUS ALSO INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
DANIEL CAMMARATA, CONTROLLER AND ASSISTANT SECRETARY, PUEBLO XTRA INTERNATIONAL,
INC., 1300 N.W. 22ND STREET, POMPANO BEACH, FLORIDA 33069, TELEPHONE NUMBER
(954) 977-2500. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY , 1997.
iii
<PAGE> 5
FORWARD LOOKING INFORMATION
Certain of the matters discussed under the captions "Prospectus Summary",
"Risk Factors", "Summary Financial Data", "Management's Discussion and Analysis
of Financial and Results of Operations", "Business" and elsewhere in this
Prospectus contain certain forward-looking statements concerning the Company's
operations, economic performance and financial condition, including, among other
things, the Company's business strategy. These statements are based on the
Company's expectations and are subject to various risks and uncertainties.
Actual results could differ materially from those anticipated due to a number of
factors, including those identified under "Risk Factors" and elsewhere in this
Prospectus.
Pueblo and Xtra are trademarks of Pueblo International, Inc. and
Blockbuster is a registered trademark of Blockbuster Entertainment, Inc.
iv
<PAGE> 6
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by, and
should be read in conjunction with, the more detailed information and financial
data, including the consolidated financial statements and notes thereto,
included elsewhere in this Prospectus. All references to "Puerto Rico" in this
Prospectus refer to the Commonwealth of Puerto Rico and all references to the
"U.S. Virgin Islands" in this Prospectus refer to St. Thomas and St. Croix in
the Territory of the U.S. Virgin Islands. For information with respect to the
Commonwealth of Puerto Rico, see "Commonwealth of Puerto Rico" attached as
Appendix A to this Prospectus. All references to market share data in this
Prospectus are based on industry publications or Company estimated data for
calendar year 1996. All references herein to the "Company" refer to Pueblo Xtra
International, Inc. and include its subsidiaries, unless the context otherwise
requires. The Company's fiscal year ends on the last Saturday in January (for
example, "fiscal 1997" refers to the fiscal year ended January 25, 1997).
THE COMPANY
The Company is the largest supermarket chain and video rental operator in
Puerto Rico and in the U.S. Virgin Islands. The Company believes it has
developed significant name recognition, strong customer loyalty and leading
market shares due to the superior quality and large size of its stores, the
breadth and price competitiveness of its product offerings and its extensive
market coverage in prime locations. The Company currently operates 44
supermarkets in Puerto Rico and six supermarkets in the U.S. Virgin Islands. The
Company also currently operates 32 Blockbuster locations in Puerto Rico and two
Blockbuster locations in the U.S. Virgin Islands as the exclusive Blockbuster
franchisee for Puerto Rico and for the U.S. Virgin Islands. In fiscal 1997, the
Company generated revenues of $1,020.1 million and EBITDA (as defined) on a pro
forma basis (as hereinafter defined) of $50.4 million.
SUPERMARKET OPERATIONS
The Company operates in two complementary supermarket formats: conventional
Pueblo supermarkets which emphasize service, variety and high quality products
at competitive prices, and Xtra supermarkets which are typically larger stores
emphasizing everyday low prices. In Puerto Rico, the Company currently operates
14 Pueblo stores and 30 Xtra stores, and has a grocery retailing market share of
approximately 29%. In addition, the Company estimates that it has a 34% market
share in the greater San Juan metropolitan area, the most densely populated
region of Puerto Rico, with more than one-third of the island's 3.7 million
residents. In fiscal 1997 in Puerto Rico, Pueblo stores averaged approximately
28,286 gross sq. ft. and generated an average of approximately $828 of sales per
selling sq. ft., while Xtra stores averaged approximately 45,900 gross sq. ft.
and generated an average of approximately $681 of sales per selling sq. ft.
In fiscal 1997, the six Pueblo stores in the U.S. Virgin Islands averaged
approximately 32,500 gross sq. ft. and generated an average of approximately
$752 of sales per selling sq. ft. The Company has an estimated U.S. Virgin
Islands grocery retailing market share of approximately 50%.
Since the Acquisition (as hereinafter defined) in 1993, the Company has
made capital expenditures totalling approximately $58.0 million in its
supermarket operations in Puerto Rico and the U.S. Virgin Islands, including the
opening of five new Xtra stores, the addition of one new Pueblo store, the
remodelling of 15 existing supermarkets and the conversion of five Pueblo stores
into Xtra stores.
VIDEO OPERATIONS
The Company operates 34 Blockbuster locations as the exclusive Blockbuster
franchisee for Puerto Rico and the U.S. Virgin Islands. In Puerto Rico, the
Company operates 10 in-store Blockbuster outlets and 22 free standing
Blockbuster stores, the majority of which are adjacent to its supermarkets. In
the U.S. Virgin Islands, the Company operates one in-store Blockbuster outlet
and one free standing Blockbuster store. In fiscal 1997, the Company's free
standing Blockbuster stores averaged approximately 6,000 gross sq. ft., while
the Company's in-store Blockbuster outlets averaged approximately 4,200 gross
sq. ft. In fiscal 1997, the
1
<PAGE> 7
Company's Blockbuster video stores had an increase in same store sales of 10.5%.
The Company also currently operates nine video outlets in its supermarkets under
the name Pueblo Video Clubs.
As part of an aggressive expansion program for its Blockbuster video
operations, the Company has made capital expenditures totalling approximately
$7.5 million since the Acquisition, including the addition of 14 new Blockbuster
locations, of which three were new Blockbuster stores and 11 were conversions of
Pueblo Video Clubs into in-store Blockbuster outlets. As part of its traffic
building strategy, the Company intends to convert all of its remaining Pueblo
Video Clubs to Blockbuster outlets.
BACKGROUND
The Company was organized as a subsidiary of PXC&M Holdings, Inc.
("Holdings") at the initiative of Gustavo and Ricardo Cisneros to effect the
acquisition (the "Acquisition") of Pueblo International, Inc. ("Pueblo") on July
28, 1993. In connection with and following the Acquisition, Holdings and its
affiliates have invested approximately $92 million in the Company. Gustavo and
Ricardo Cisneros have been direct or indirect beneficial owners of interests in
companies that own or are engaged in a number of diverse commercial enterprises
in Venezuela, the United States, Brazil, Chile and Mexico.
Following the Acquisition, the Company continued an existing strategy
designed to significantly expand its market penetration through new supermarket
openings in Puerto Rico and Florida and the opening of new Blockbuster
locations. Primary emphasis was placed on new supermarket development rather
than supermarket operations and as a result of this focus, as well as increased
competition, total sales, same store sales and consolidated operating results
declined.
In October 1995, William T. Keon, III was named President and Chief
Executive Officer of the Company. Following his arrival at the Company, Mr. Keon
conducted a thorough review of the Company's operating business practices and
its financial performance. As a result of such review, the Company determined in
January 1996 to discontinue its retail operations in the competitive Florida
market in order to focus on its core markets where it has a stronger competitive
position and greater profit opportunities. In the spring of 1996, management
also began to take several other actions designed to improve the financial
performance of the Company, including the conversion of five Pueblo stores to
the Xtra format, the closing of two underperforming Xtra stores in Puerto Rico,
an increase in the Company's advertising expenditures in Puerto Rico and the
continuing conversion of Pueblo Video Clubs into in-store Blockbuster outlets.
In the summer of 1996, in conjunction with the implementation of the Company's
revised business strategy (described below), the Company retained a retail
industry consulting firm to assist management in analyzing the Company's
operating practices. One result of such analysis was the reorganization of labor
scheduling practices, which enabled the Company to eliminate 440 store employees
in January 1997 and reduce annual labor costs by approximately $9.0 million.
It is management's belief that the decision to exit the Florida market,
together with the actions which the Company began to take in the spring of 1996
and the implementation of its revised business strategy, has begun to
contribute, and should continue to contribute, toward improved operating
results. The Company experienced an increase of 3.4% in same store sales for its
Puerto Rican supermarkets in the fourth quarter of fiscal 1997 compared with the
fourth quarter of fiscal 1996, a significant improvement from the declining
annual trend in same store supermarket sales in Puerto Rico during the past four
years. In addition, in fiscal 1997, the Company's U.S. Virgin Islands
supermarkets reversed an annual same store sales decline since fiscal 1994 with
an increase in same store sales of 7.0% over fiscal 1996. While the Company does
not expect such increases to continue on a quarterly basis, the Company believes
that the implementation of its strategic initiatives will continue to contribute
to an overall improvement in operating results.
In March 1997, as part of its effort to recruit senior managers trained in
United States mainland supermarket retailing practices, the Company hired David
L. Aston as President of the Puerto Rico supermarket division. Mr. Aston has
over 28 years of United States supermarket experience, primarily with the Kroger
Company, and most recently as President of Waldbaums and Superfresh Foods, units
of the A&P Company. In June 1997, Daniel J. O'Leary became the Company's Chief
Financial Officer. Prior to joining the Company, Mr. O'Leary served most
recently as Senior Vice President of Finance and Chief Financial Officer of
Phar-Mor, Inc.
2
<PAGE> 8
BUSINESS STRATEGY AND COMPETITIVE STRENGTHS
Based upon management's review of the Company's business practices and
procedures, the Company has developed and is implementing a strategy designed to
increase sales through both higher comparable store performance and selected new
store expansion, and to increase gross profit and operating margins through
improved operating, purchasing and merchandising practices. Management believes
that the Company's leading market position in Puerto Rico and in the U.S. Virgin
Islands, the location of its stores in high traffic shopping centers, the
Company's reputation for quality, variety and service and its ability to
leverage its substantial purchasing and distribution power to obtain volume
discounts provide the Company with the necessary platform to implement its
business strategy. The components of this strategy have been designed to build
upon the Company's competitive strengths and seek to increase sales by
increasing store traffic through the introduction of brand name retail outlets
within many of the Company's supermarkets to create destination centers,
enhancing the Company's price/value image, expanding the Company's Blockbuster
operations and selectively developing new supermarkets in attractive targeted
markets. The Company's strategy also seeks to increase gross profit and
operating margins by increasing store level productivity, reducing labor costs,
capitalizing on procurement and distribution capabilities, initiating a category
management system, expanding its private label line of products, enhancing its
management team and implementing management incentive programs. See
"Business -- Business Strategy".
REFINANCING PLAN
The Company used the net proceeds from the offering of the Initial Notes
(the "Offering"), approximately $73.9 million after deducting expenses of the
Offering, together with available cash of the Company, to repay the senior
secured indebtedness of Pueblo outstanding under Pueblo's Bank Credit Agreement,
dated as of July 21, 1993 (the "Old Bank Credit Agreement"). In connection with
the Offering, Pueblo also entered into an amended bank credit agreement (the
"New Bank Credit Agreement") which provides for a $65.0 million revolving credit
facility and less restrictive covenants compared to the Old Bank Credit
Agreement. After the issuance of standby letters of credit in the amount of
$23.3 million, Pueblo has borrowing availability on a revolving basis of $41.7
million under the New Bank Credit Agreement. Concurrent with the Offering, the
Company satisfied $10 million of indebtedness payable to a related party by
transferring its interest in two real estate properties from its discontinued
Florida operations to the related party. The Company believes its interest in
these properties had a fair market value of no more than $10 million. The sale
of the Initial Notes, the repayment of indebtedness of Pueblo under the Old Bank
Credit Agreement, the transfer of certain real estate properties in satisfaction
of indebtedness owed to a related party and the consummation of the New Bank
Credit Agreement are collectively referred to as the "Refinancing Plan." The
Company believes that the completion of the Refinancing Plan has provided the
Company with extended debt maturities, increased liquidity and less restrictive
financial covenants, which will give it increased operating and financial
flexibility.
3
<PAGE> 9
THE INITIAL OFFERING
The Initial Notes.......... The Initial Notes were sold by the Company on April
29, 1997 to the Initial Purchasers pursuant to a
Purchase Agreement, dated April 24, 1997 (the
"Purchase Agreement"). The Initial Purchasers
subsequently resold the Initial Notes to qualified
institutional buyers pursuant to Rule 144A under
the Securities Act.
Registration Rights
Agreement................. Pursuant to the Purchase Agreement, the Company and
the Initial Purchasers entered into a Registration
Rights Agreement, dated as of April 29, 1997 (the
"Registration Rights Agreement"), which grants the
holders of the Initial Notes certain exchange and
registration rights. The Exchange Offer is intended
to satisfy such exchange rights which terminate
upon the consummation of the Exchange Offer.
THE EXCHANGE OFFER
The Exchange Notes......... The forms and terms of the Exchange Notes are
identical in all material respects to the terms of
the Initial Notes for which they may be exchanged
pursuant to the Exchange Offer, except for certain
transfer restrictions and registration rights
relating to the Initial Notes and except for
certain penalty interest provisions relating to the
Initial Notes described below under "-- Terms of
the Exchange Notes."
The Exchange Offer......... The Company is offering to exchange $1,000
principal amount of Exchange Notes for each $1,000
principal amount of Initial Notes. As of the date
hereof, $85,000,000 aggregate principal amount of
Initial Notes are outstanding. The Company will
issue the Exchange Notes to holders on or promptly
after the Expiration Date.
The Company is making the Exchange Offer in
reliance on the position of the staff of the
Commission as set forth in certain no-action
letters addressed to other parties in other
transactions. However, the Company has not sought
its own no-action letter and there can be no
assurance that the staff of the Commission would
make a similar determination with respect to the
Exchange Offer as in such other circumstances.
Based on these interpretations by the staff of the
Commission, the Company believes that Exchange
Notes issued pursuant to this Exchange Offer in
exchange for Initial Notes may be offered for
resale, resold and otherwise transferred by a
holder thereof other than (i) a broker-dealer who
purchased such Initial Notes directly from the
Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act
or (ii) a person that is an "affiliate" (as defined
in Rule 405 of the Securities Act) of the Company
without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that such Exchange Notes are acquired
in the ordinary course of such holder's business
and that such holder is not participating, and has
no arrangement or understanding with any person to
participate, in the distribution of such Exchange
Notes. Holders of Initial Notes accepting the
Exchange Offer will represent to the Company in the
Letter of Transmittal that such conditions have
been met. Any holder who participates in the
Exchange Offer for the purpose of participating in
a distribution of the Exchange Notes may not rely
on the position of the staff of the Commission as
set forth in these no-action letters and would
4
<PAGE> 10
have to comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any secondary resale transaction.
Each broker-dealer (other than an "affiliate" of
the Company) that receives Exchange Notes for its
own account pursuant to the Exchange Offer must
acknowledge that it acquired the Initial Notes as
the result of market-making activities or other
trading activities and will deliver a prospectus in
connection with any resale of such Exchange Notes.
The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales
of Exchange Notes received in exchange for Initial
Notes where such Initial Notes were acquired by
such broker-dealer as a result of market-making
activities or other trading activities. The Company
intends for a period of 180 days after the date of
this Prospectus, to make this Prospectus available
to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution".
Interest on the Exchange
Notes..................... The Exchange Notes will bear interest at the rate
of 9 1/2% per annum from April 29, 1997, the date
of issuance of the Initial Notes that are tendered
in exchange for the Exchange Notes (or the most
recent interest payment date to which interest on
such Notes has been paid or duly provided for).
Accordingly, holders of Initial Notes that are
accepted for exchange will not receive at the time
of tender, interest on the Initial Notes that is
accrued but unpaid but such interest will be
payable on the first interest payment date after
the Expiration Date. Interest on the Exchange Notes
will be payable semi-annually on February 1 and
August 1 in each year, commencing August 1, 1997.
Expiration Date; Withdrawal
of Tender................. The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1997, or on such
later date and time to which it is extended by the
Company in its sole discretion (the "Expiration
Date"). The tender of Initial Notes pursuant to the
Exchange Offer may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration
Date. The Expiration Date will not in any event be
extended to a date later than , 1997.
Any Initial Notes not accepted for exchange for any
reason will be returned without expense to the
tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange
Offer.
Certain Conditions to the
Note Exchange Offer....... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Conditions to the Exchange
Offer."
Procedures for Tendering
Initial Notes............. Each holder of Initial Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with such Initial Notes and any other required
documentation to the Exchange Agent (as hereinafter
defined) at the address set forth
5
<PAGE> 11
herein. By executing the Letter of Transmittal,
each holder will represent to the Company that,
among other things, (i) any Exchange Notes to be
received by it will be acquired in the ordinary
course of its business, (ii) it has no arrangement
or understanding with any person to participate in
the distribution of the Exchange Notes and (iii) it
is not an "affiliate," as defined in Rule 405 of
the Securities Act, of the Company or, if it is an
affiliate, it will comply with the registration and
prospectus delivery requirements of the Securities
Act to the extent applicable. With respect to the
exchange of Initial Notes which are registered in
the name of a broker, dealer, commercial bank,
trust company or other nominee, see "The Exchange
Offer -- Procedures for Tendering."
Special Procedures for
Beneficial Owners......... Any beneficial owner whose Initial Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender such Initial Notes in the
Exchange Offer should contact such registered
holder and promptly instruct such registered holder
to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such
beneficial owner's own behalf, such owner must,
prior to completing and executing the Letter of
Transmittal and delivering his Initial Notes,
either make appropriate arrangements to register
ownership of the Initial Notes in such owner's name
or obtain a properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time and may not be
able to be completed prior to the Expiration Date.
Guaranteed Delivery
Procedure................. Holders of Notes who wish to tender their Initial
Notes and whose Initial Notes are not immediately
available or who cannot deliver their Initial
Notes, the Letter of Transmittal or any other
documents required by the Letter of Transmittal to
the Exchange Agent, prior to the Expiration Date,
must tender their Initial Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery Procedures."
Registration
Requirements.............. The Company has agreed to use its best efforts to
consummate within 120 days of the Closing Date (as
hereinafter defined) the registered Exchange Offer
pursuant to which holders of the Initial Notes will
be offered an opportunity to exchange their Initial
Notes for the Exchange Notes which will be issued
without legends restricting the transfer thereof.
In the event that applicable interpretations of the
staff of the Commission do not permit the Company
to effect the Exchange Offer or in certain other
circumstances, the Company has agreed to file a
shelf registration statement (the "Shelf
Registration Statement") covering resales of the
Initial Notes and to use its best efforts to cause
such Shelf Registration Statement to be declared
effective under the Securities Act and, subject to
certain exceptions, keep such Shelf Registration
Statement effective until two years after the
original issuance of the Initial Notes.
Certain Federal Income Tax
Considerations............ For a discussion of certain federal income tax
considerations relating to the exchange of the
Exchange Notes for the Initial Notes, see
"Taxation."
6
<PAGE> 12
Use of Proceeds............ There will be no cash proceeds to the Company from
the exchange of Notes pursuant to the Exchange
Offer.
Consequences of Failure to
Exchange Initial Notes... As a result of the making of this Exchange Offer on
the terms set forth in the Registration Rights
Agreement, the Company will have fulfilled certain
of its obligations under the Registration Rights
Agreement, and holders of Initial Notes who are
eligible to, but elect not to, tender their Notes
will generally not have any further registration
rights under the Registration Rights Agreement or
otherwise. Such holders will continue to hold the
untendered Initial Notes and will be entitled to
all the rights and subject to all the limitations
applicable thereto under the Indenture, except to
the extent such rights or limitations, by their
terms, terminate or cease to have further
effectiveness as a result of the Exchange Offer.
All untendered Initial Notes will continue to be
subject to certain restrictions on transfer.
Accordingly, if any Initial Notes are tendered and
accepted in the Exchange Offer, the trading market
for the untendered Initial Notes could be adversely
affected.
Exchange Agent............. United States Trust Company of New York will act as
Exchange Agent (in such capacity, the "Exchange
Agent"). The address and telephone number of the
Exchange Agent are set forth in "The Exchange
Offer -- Exchange Agent."
TERMS OF THE EXCHANGE NOTES
General.................... The form and terms of the Exchange Notes are the
same as the form and terms of the Initial Notes
(which they replace) except that (i) the Exchange
Notes bear a Series C designation, (ii) the
Exchange Notes have been registered under the
Securities Act and, therefore, will not bear
legends restricting the transfer thereof, and (iii)
the holders of Exchange Notes will not be entitled
to certain rights under the Registration Rights
Agreement, including the provisions providing for
an increase in the interest rate on the Initial
Notes in certain circumstances relating to the
timing of the Exchange Offer, which rights will
terminate when the Exchange Offer is consummated.
See "The Exchange Offer -- Consequences of Failure
to Exchange." The Exchange Notes will evidence the
same debt as the Initial Notes and will be entitled
to the benefits of the Indenture. See "Description
of the Notes."
Issuer..................... Pueblo Xtra International, Inc.
Maturity Date.............. August 1, 2003.
Interest Payment Dates..... February 1 and August 1, commencing August 1, 1997.
Ranking.................... The Exchange Notes will be senior unsecured
obligations of the Company and will rank in right
of payment equally with all other existing and
future senior unsecured obligations of the Company,
including the Existing Notes. Because the Company
is a holding company that conducts all of its
business through subsidiaries, all existing and
future liabilities of its subsidiaries will be
effectively senior to the Exchange Notes. As of
January 25, 1997, on a pro forma basis after giving
effect to the Refinancing Plan, the Company would
have had approximately $206.2 million of
indebtedness outstanding other than the Notes, of
which $180.0 million would have been the Existing
Notes and $26.2
7
<PAGE> 13
million would have been senior secured
indebtedness, comprising guarantees of the total
outstanding indebtedness of the Company's
subsidiaries. In addition, after the issuance of
standby letters of credit in the amount of $23.3
million, Pueblo would have had availability of
$41.7 million under the New Bank Credit Agreement
(under which all borrowings are guaranteed by the
Company). The terms of the Indenture permit the
Company and its subsidiaries to incur additional
indebtedness, subject to certain limitations.
Optional Redemption........ The Exchange Notes will be redeemable at the
Company's option, in whole or in part, at any time
on or after August 1, 1998 at the redemption prices
set forth herein, plus accrued and unpaid interest,
if any, to the date of redemption. See "Description
of Notes -- Redemption -- Optional Redemption."
Mandatory Redemption....... None.
Change of Control.......... Upon a Change of Control (as hereinafter defined),
the Company will be required to make an offer to
repurchase all outstanding Notes at 101% of the
principal amount thereof plus accrued and unpaid
interest thereon to the date of repurchase. See
"Description of Notes -- Repurchase of Notes upon a
Change of Control."
Covenants.................. The Indenture restricts, among other things, the
Company's ability to incur additional indebtedness,
pay dividends or make certain other restricted
payments, agree to certain payment restrictions
applicable to Restricted Subsidiaries, enter into
certain transactions with affiliates, sell stock of
Restricted Subsidiaries, incur liens, enter into
sale-leaseback transactions or apply net proceeds
from certain asset sales. See "Description of
Notes -- Certain Covenants."
RISK FACTORS
For a discussion of certain matters that should be considered by
prospective investors in connection with the Exchange Offer, see "Risk Factors."
Such risks include, but are not limited to, the Company's substantial
indebtedness, certain restrictions under the New Bank Credit Agreement and the
indentures covering the Existing Notes and the Notes, the Company's holding
company structure, asset encumbrances and ability to make Change of Control
repurchase offers, recent management changes, the Company's limited geographic
market, competition, the risks to the Company's Blockbuster development
strategy, the control of the Company by the Principal Shareholders (as
hereinafter defined), the risk of fraudulent transfer liability, original issue
discount consequences and the absence of a public market for the Notes.
8
<PAGE> 14
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SALES PER SELLING SQUARE FOOT AMOUNTS)
The summary financial data below for the fiscal years ended January 28,
1995, January 27, 1996 and January 25, 1997 are derived from the Consolidated
Financial Statements that have been audited by Deloitte & Touche LLP,
independent auditors, and are included elsewhere in this Prospectus. The summary
financial data below for the fiscal years ended January 30, 1993 and January 29,
1994 are derived from audited financial statements of the Company's predecessor
and the Company that are not included herein. See note 3 below. The pro forma
financial data is provided for information purposes only, is unaudited and is
not necessarily indicative of future operating results or financial condition or
what the operating results or financial condition would have been had the
Refinancing Plan actually been consummated as of the beginning of the period or
as of the balance sheet date indicated. The information set forth below should
be read in conjunction with "Selected Financial Data", the Consolidated
Financial Statements included elsewhere herein and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" which discusses,
among other things, the closing of the Company's Florida operations in fiscal
1996.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1)
-----------------------------------------------------------------------------
PRO FORMA
JANUARY 30, JANUARY 29, JANUARY 28, JANUARY 27, JANUARY 25, JANUARY 25,
1993(2) 1994(3) 1995 1996 1997 1997(4)
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................... $1,251,726 $1,199,123 $1,166,955 $1,145,370 $1,020,056 $1,020,056
Gross profit.................... 303,158 295,273 295,819 296,880 259,727 259,727
Selling, general and
administrative expenses(5).... 232,202 230,266 229,197 240,219 213,485 213,485
Unusual charges(6).............. -- -- -- 32,161 4,160 4,160
Operating profit (loss)......... 41,307 27,357 22,757 (19,169) 954 954
Interest expense, net........... 13,047 21,635 32,153 33,346 30,182 30,288
Net income (loss)............... 15,922 (9,751) (4,641) (32,357) (16,918) (16,983)
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents(7).... $ 7,838 $ 5,471 $ 15,680 $ 6,998 $ 12,148 $ 5,566
Working capital (deficit)....... (8,478) (26,873) (11,534) (31,125) (56,217) (42,979)
Fixed assets, net............... 168,395 224,605 207,935 166,283 150,915 150,915
Total assets.................... 300,012 619,625 602,695 573,383 522,740 507,239
Total debt...................... 123,686 347,124 329,855 308,497 295,204 282,940(8)
Total liabilities............... 251,938 552,728 525,439 528,484 489,759 477,495
Stockholder's equity............ 48,074 66,897 77,256 44,899 32,981 29,744
OTHER DATA:
EBITDA (as defined)(9).......... $ 70,956 $ 65,007 $ 66,622 $ 56,661 $ 50,391(10) $ 50,391(10)
Cash flow used in investing
activities.................... (16,089) (330,192) (15,707) (21,832) (1,364) (13,628)
Cash flow provided by (used in)
financing activities.......... (23,662) 300,580 (1,877) (10,915) (8,298) 1,702
Cash flow provided by operating
activities.................... 42,027 27,249 27,793 24,065 14,812 10,494
Depreciation and amortization... 29,649 37,650 43,865 43,669 41,128 41,128
Capital expenditures............ 22,472 23,493 16,401 22,334 14,455 14,455
EBITDA (as defined) margin(9)... 5.7% 5.4% 5.7% 4.9% 4.9% 4.9%
Ratio of earnings to fixed
charges(11)................... 2.7x -- -- -- -- --
Ratio of total debt to EBITDA
(as defined).................. 5.6x
Cash interest expense........... $ 28,129
Ratio of EBITDA (as defined) to
cash interest expense......... 1.8x
</TABLE>
9
<PAGE> 15
<TABLE>
<CAPTION>
FISCAL YEAR(1)
-------------------------------------------------------
1993(2) 1994(3) 1995 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PUEBLO AND XTRA STORE DATA:
PUERTO RICO
Number of stores (at fiscal year-end)............ 40 42 44 46 44
Average sales per store (12)..................... $21,065 $20,777 $19,797 $19,808 $19,672
Average selling square footage................... 26,405 26,576 26,031 27,055 27,652
Average sales per selling square foot(12)........ $ 798 $ 782 $ 761 $ 732 $ 711
Total sales...................................... 850,139 860,190 874,019 877,603 886,765
Same store sales % change........................ 9.2% (0.9)% (1.3)% (2.8)% (2.6)%
U.S. VIRGIN ISLANDS
Number of stores (at fiscal year-end)............ 5 5 5 6 6
Average sales per store (12)..................... $19,594 $19,003 $15,619 $14,952 $15,110
Average selling square footage................... 20,724 20,724 20,724 20,625 20,104
Average sales per selling square foot(12)........ $ 945 $ 917 $ 754 $ 725 $ 752
Total sales...................................... 97,970 95,014 78,097 76,813 90,659
Same store sales % change........................ 0.9% (1.2)% (17.8)% (3.3)% 7.0%
BLOCKBUSTER STORE DATA:
Number of stores (at fiscal year-end)............ 19 21 22 22 27
Average sales per store (12)..................... $ 1,206 $ 1,123 $ 1,254 $ 1,443 $ 1,588
Average weekly sales............................. 443 467 535 608 794
Total sales...................................... 16,763 23,189 26,994 31,295 35,938
Same store sales % change........................ (3.5)% (8.1)% 10.9% 14.0% 10.5%
</TABLE>
- ---------------
(1) Operating activity for the 26 weeks ended January 29, 1994 and for the
fiscal years 1995, 1996 and 1997 are representative of the Company
subsequent to the Acquisition. All other operating activity pertains to
Pueblo prior to the Acquisition.
(2) Fiscal 1993 was a 53-week year.
(3) Represents the combined results of operations for the 26-week period ended
July 31, 1993 of the Company's predecessor prior to the Acquisition and the
26-week period ended January 29, 1994 of the Company. The results for each
26 week period are as follows:
<TABLE>
<CAPTION>
26 WEEKS ENDED 26 WEEKS ENDED
JULY 31, 1993 JANUARY 29, 1994
-------------- ----------------
<S> <C> <C>
Net sales..................................... $612,454 $586,669
Gross profit.................................. 150,961 144,312
Store operating, selling and administrative
expenses.................................... 117,738 112,528
Operating profit.............................. 17,478 9,879
Interest expense, net......................... 5,533 16,102
Net income (loss)............................. (5,148) (4,603)
EBITDA (as defined)........................... 33,223 31,784
Depreciation and Amortization................. 15,745 21,905
</TABLE>
(4) Pro forma income statement data reflect changes in interest expense and
assume completion of the Refinancing Plan as of the first day of fiscal
1997. Pro forma balance sheet data include an extraordinary $5.3 million
write-off of unamortized fees in connection with the Old Bank Credit
Agreement, which has been tax effected, and assume completion of the
Refinancing Plan as of January 25, 1997.
(5) Selling, general and administrative expenses for fiscal years 1996 and 1997
include certain expenses and charges related to the implementation of the
Company's strategic initiatives and other matters. See "Management's
Discussion and Analysis of Financial Conditions and Results of
Operations -- General."
10
<PAGE> 16
(6) The Company recorded unusual charges of approximately $30 million in fiscal
1996 and $4.2 million in fiscal 1997 as a result of the Company's exit from
the Florida market and an unusual charge of $2.2 million in fiscal 1996 as
a result of the Company's restructuring of its Puerto Rico operations.
(7) Highly liquid investments purchased with a maturity of three months or less
are considered cash equivalents.
(8) Reflects the issuance of the Initial Notes at a discount.
(9) EBITDA (as defined) represents income (loss) before interest, income taxes,
sundry, depreciation and amortization and unusual charges ("EBITDA (as
defined)"). In fiscal 1997, income taxes included $1.5 million representing
the tax effect of the cumulative effect of a change in accounting principle
relating to the adoption of SFAS No. 121 during such fiscal year. See Note
1 to Notes to Consolidated Financial Statements. EBITDA (as defined) is not
intended to represent cash flow from operations as defined by generally
accepted accounting principles and should not be considered as an
alternative to net income (loss) as an indication of the Company's
operating performance or to cash flows as a measure of liquidity. EBITDA
(as defined) is included as it is the basis upon which the Company assesses
its financial performance. EBITDA (as defined) margin represents EBITDA (as
defined) divided by net sales.
(10) EBITDA (as defined) includes $1.1 million in severance costs recorded in
connection with the elimination of 440 store employees during the fourth
quarter of fiscal 1997 and associated salaries and benefits totalling $8.7
million paid to or on behalf of these employees for fiscal 1997.
(11) In calculating this ratio, earnings consist of income (loss) before income
taxes, extraordinary item and cumulative effect of a change in accounting
principle, plus fixed charges adjusted to exclude interest capitalized.
Fixed charges consist of interest whether expensed or capitalized,
capitalized lease interest expense and amortization of deferred financing
fees, whether expensed or capitalized, plus the portion of rental expense
under operating leases which has been deemed by the Company to be
representative of the interest factor. Earnings were insufficient to cover
fixed charges by $5.6 million, $9.4 million, $52.6 million and $29.1
million in fiscal years 1994, 1995, 1996 and 1997, respectively. During
fiscal years 1996 and 1997, earnings were adversely affected by a number of
unusual charges and other items related to the implementation of the
Company's strategic initiatives and other matters. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General."
(12) For all periods presented, average sales are weighted for the period of
time stores are open during the year.
11
<PAGE> 17
RISK FACTORS
Holders of the Initial Notes should consider the specific factors set forth
below as well as the other information set forth elsewhere in this Prospectus in
connection with the Exchange Offer. An investment in the Notes involves a high
degree of risk.
SUBSTANTIAL INDEBTEDNESS; CERTAIN RESTRICTIONS
The Company has a substantial amount of indebtedness. As of January 25,
1997, on a pro forma basis after giving effect to the Refinancing Plan and
reflecting the issuance of the Initial Notes at a discount, consolidated total
indebtedness of the Company would have been $282.9 million, consolidated
stockholder's equity of the Company would have been $29.7 million and the ratio
of the Company's consolidated total indebtedness to consolidated stockholders'
equity would have been 9.5:1. In addition, pro forma for fiscal 1997, the
Company's ratio of EBITDA (as defined) to total cash interest expense would have
been 1.8:1 and the Company's ratio of total debt to EBITDA (as defined) would
have been 5.6:1. See Selected Financial Data, footnote 9.
The Company's high degree of leverage will have important consequences to
holders of the Notes, including the following: (i) the ability of the Company in
the future to obtain additional financing for working capital, capital
expenditures, acquisitions, store expansions and remodeling or other purposes
may be limited; (ii) a substantial portion of the Company's cash flow from
operations will be required to meet the Company's debt service obligations,
which will reduce the funds available to the Company for its operations and
future business opportunities; (iii) the Company may be more leveraged than its
competitors, which may place it at a competitive disadvantage, including in
relations with suppliers, who may be less willing to extend favorable payment
terms to the Company; (iv) the Company's high degree of leverage may make it
more vulnerable to a downturn in its business and may limit its ability to
respond to price competition or changes in the economy generally; and (v) the
Company may not have sufficient funds to repay the Notes or be able to refinance
the Notes on satisfactory terms at maturity.
The Company believes that the facilities provided by the New Bank Credit
Agreement, together with cash flow from operations, will be adequate for its
liquidity and capital resource needs, including the debt service requirements on
the Existing Notes and the Notes. However, the Company's ability to generate
adequate cash flow from operations will depend on its future operating
performance and financial results, which will be subject to successful
implementation of its business strategy as well as economic, financial,
competitive and other factors beyond its control. In the event that the Company
is unable to generate adequate cash flow, there is no assurance that Holdings or
any of its affiliates would be willing to provide capital or liquidity resources
to the Company.
Like most retailers, the Company's subsidiaries depend upon regular trade
credit to finance the acquisition of a significant portion of their inventory.
The Company believes that payment terms provided by suppliers, together with
available working capital credit facilities, will be adequate to finance
inventory purchases; however, there can be no assurance that this will continue
to be the case.
In the past, the Company has obtained amendments from its lenders under the
Old Bank Credit Agreement in order to maintain its compliance with certain
restrictive covenants contained therein. The New Bank Credit Agreement and the
indentures for the Existing Notes and the Notes also contain numerous financial
and operating covenants. These covenants limit the discretion of the Company's
management with respect to certain business matters by placing significant
restrictions on, among other things, the ability of the Company to incur
additional indebtedness, to create liens or other encumbrances, to make capital
expenditures, acquisitions and investments, to make certain payments, to sell or
otherwise dispose of assets and to merge or consolidate with other entities. See
"Description of New Bank Credit Agreement" and "Description of Notes -- Certain
Covenants." A failure to comply with the covenants contained in the New Bank
Credit Agreement, or the indentures for the Existing Notes and the Notes, could
result in an event of default under the New Bank Credit Agreement or the
respective indentures, which could permit acceleration of the related debt and
acceleration of debt under other instruments that may contain cross-acceleration
or cross-default
12
<PAGE> 18
provisions. See "Description of New Bank Credit Agreement" and "Description of
Notes -- Events of Default."
HOLDING COMPANY STRUCTURE
The Company has no operations of its own, and its only assets are its
equity interest in Pueblo and intercompany notes issued to the Company by its
subsidiaries in connection with its investment of the net proceeds of the
Existing Notes and the Notes. The Company has no source of cash to meet its
obligations, including its obligations under the Existing Notes and the Notes,
other than payments by its subsidiaries on such intercompany notes, which are
restricted and effectively subordinated to Pueblo's obligations under the New
Bank Credit Agreement, and dividends from its subsidiaries. The Company has
approximately $175 million of such intercompany indebtedness related to the
Existing Notes and has approximately $73.9 million, net of estimated discount
and associated fees, of such intercompany indebtedness related to the Notes
(which will accrue to $85 million at the maturity date of the Notes).
Accordingly, payments in respect of such indebtedness will not be sufficient to
enable the Company to meet its obligations under the Existing Notes and the
Notes. As a result, it will be necessary for the Company to receive dividends or
other fee income from its subsidiaries in order to meet the Company's
obligations under the Existing Notes and the Notes. For a description of
restrictions on the ability of the Company's subsidiaries to pay dividends, see
"Description of New Bank Credit Agreement." Although the Company expects to
receive sufficient funds from its subsidiaries to enable it to meet its debt
service obligations under the Existing Notes and the Notes, there can be no
assurance that it will be able to do so.
The Company's holding company structure effectively subordinates payments
on the Notes to any liabilities of subsidiaries of the Company, including debt
of Pueblo under the New Bank Credit Agreement. After giving effect to the
Refinancing Plan as if it had occurred on January 25, 1997, the subsidiaries of
the Company would have had approximately $26.2 million of indebtedness and,
after the issuance of standby letters of credit in the amount of $23.3 million,
would have had availability of $41.7 million under the New Bank Credit
Agreement. In addition, the Company's subsidiaries may incur additional
borrowings in the future, subject to the restrictions contained in the
indentures for the Existing Notes and the Notes.
ASSET ENCUMBRANCES; CHANGE OF CONTROL OFFER
The obligations of Pueblo under the New Bank Credit Agreement are
guaranteed by the Company and Holdings, the owner of all of the Company's
outstanding capital stock, and are secured by first priority pledges of all the
outstanding stock of the Company's subsidiaries, by the capital stock of the
Company and by intercompany notes issued by the Company's subsidiaries. If the
Company becomes insolvent or is liquidated, or if payment of obligations under
the New Bank Credit Agreement is accelerated, the lenders under the New Bank
Credit Agreement would be entitled to exercise the remedies available to a
secured lender under applicable law and pursuant to such agreement. Accordingly,
such lenders will have a prior claim with respect to such assets. See
"Description of New Bank Credit Agreement."
Upon a Change of Control, the Company is required to offer to purchase all
outstanding Notes and Existing Notes. In addition, a Change of Control would
result in an event of default under the New Bank Credit Agreement, which could
result in the acceleration of the Company's obligations thereunder. In the case
of any offer to purchase the outstanding Notes and Existing Notes upon a Change
of Control, there can be no assurance that the Company would be able to repay
amounts outstanding under the New Bank Credit Agreement or obtain waivers
necessary to consummate a purchase of the Notes and the Existing Notes. Any such
requirement to offer to purchase outstanding Notes and Existing Notes could
result in the Company having to refinance the indebtedness then outstanding
under the New Bank Credit Agreement and to obtain the funds necessary to offer
to purchase both the Notes and the Existing Notes. There can be no assurance
that the Company would be able to refinance such indebtedness or obtain such
funds or, if it were to do so, that such refinancing or such funds would be
available on terms satisfactory to the Company. See "Description of New Bank
Credit Agreement" and "Description of Notes -- Certain Covenants -- Repurchase
of Notes upon Change of Control."
13
<PAGE> 19
RECENT MANAGEMENT CHANGES
In March 1997, the Company appointed David L. Aston as the new President of
the Puerto Rico supermarket division, the Company's largest division, and as a
director of the Company. Mr. Aston has over 28 years of United States
supermarket experience, nearly all of it with the Kroger Company. Most recently,
Mr. Aston served as President of Waldbaums and Superfresh Foods, units of the
A&P Company. In February 1997, the Company's Chief Financial Officer resigned
his positions with the Company to assume a position with another company. In
June 1997, Daniel J. O'Leary became the Company's Chief Financial Officer. Prior
to joining the Company Mr. O'Leary served most recently as Senior Vice President
and Chief Financial Officer of Phar-Mor, Inc.
The Company believes that successful implementation of its business
strategy is dependent, in part, on the continued availability of qualified
senior management. The replacement of two of the most senior members of the
Company's management team involves the risk inherent in any significant
management change. While Mr. Aston's significant industry experience in the
United States does not include prior assignments in Puerto Rico, the Company
believes that this experience outweighs any disadvantages he may have during the
near term as he becomes familiar with the market in Puerto Rico. Based upon its
recent recruiting activities, the Company is confident that in the near term it
will identify and employ a qualified new chief financial officer.
While the Company believes that it has been able to, and will continue to
be able to, attract and retain qualified senior management, no assurances can be
given that the Company will be able to attract or retain qualified senior
management or that such new members of management will be able to work with the
Company's personnel or suppliers or to effectively implement the Company's
business strategy. See "Management."
LIMITED GEOGRAPHIC MARKET
The Company's operations are located in Puerto Rico and the U.S Virgin
Islands. As a result, the Company's operations are dependent upon the economies
of these two areas as well as being subject to certain other factors, such as
weather patterns, including tropical storms and hurricanes, which may adversely
affect the Company's operations. Hurricane Hugo in 1989 destroyed one of the
Company's stores in the U.S. Virgin Islands and more recent hurricanes have
caused disruptions in the Company's operations in both Puerto Rico and the U.S.
Virgin Islands. Although the Company believes that it carries adequate property
(including business interruption) and casualty insurance, there can be no
assurance that weather and other factors will not result in adverse effects on
the Company's operations.
In addition, much of the development of the manufacturing sector of the
economy in Puerto Rico can be attributed to various U.S. Federal and
Commonwealth tax incentives, including Section 936 of the Internal Revenue Code
of 1986, as amended (the "Code") which provided certain tax credits for
companies operating in Puerto Rico. The termination of Section 936 is effective
for tax years beginning after December 31, 1995. Special phaseout rules apply to
existing Section 936 credit claimants, such as the Company, for the portion of
Section 936 credit attributable to active business income. Under the phase out
rules, the amount of the credit available to existing Section 936 credit
claimants, including the Company, will decrease for tax years beginning after
December 31, 2001. The termination of Section 936 may have an adverse effect on
the economy of Puerto Rico and, indirectly, on the Company.
COMPETITION
The food retailing business is highly competitive. The number and type of
competitors and the degree of competition experienced by individual stores vary
by location. The Company competes in its different markets with local
supermarket chains, independent supermarkets, warehouse club stores, discount
drug stores and convenience stores. Warehouse club stores and mass
merchandisers, which have entered the Puerto Rico and U.S. Virgin Island markets
since 1990 offering various bulk grocery and general merchandise items, have
increased pricing pressures on grocery retailers including the Company. Certain
competitors have greater financial resources than the Company and could use
those resources to take steps which could adversely affect
14
<PAGE> 20
the Company's market position. In addition, the Company's Blockbuster video
operations compete against other independent video rental outlets as well as
television, cable, satellite broadcasting, movie theaters and other forms of
entertainment. There can be no assurance that future growth in cable and
satellite penetration in the Company's markets will not adversely affect
revenues of the Company's Blockbuster operations.
RISKS TO BLOCKBUSTER DEVELOPMENT STRATEGY
The Company is the exclusive Blockbuster franchisee for Puerto Rico and the
U.S. Virgin Islands pursuant to Area Development Agreements (the "Development
Agreements") with Blockbuster Entertainment Corporation, now known as
Blockbuster Entertainment, Inc. ("BEC"). These agreements contain development
quotas requiring the Company to open a certain number of Blockbuster locations
in Puerto Rico by December 1999 and in the U.S. Virgin Islands by April 1997.
Each Blockbuster location is subject to a franchise agreement (a "Franchise
Agreement") with BEC that provides the right for such location to conduct
Blockbuster operations for a 20 year period so long as the terms of such
Franchise Agreement are complied with. The Company has fulfilled its development
quota in each of the U.S. Virgin Islands and Puerto Rico. The Development
Agreements require the Company and BEC to negotiate in good faith in order to
agree on further development quotas beyond the achieved quotas to enable the
Company to open additional new Blockbuster locations. While the Company has
successfully negotiated revised development quotas with BEC in the past, and
believes it maintains excellent relations with BEC, if such agreement cannot be
reached, there can be no assurance that BEC will not grant development rights to
another franchisee or seek to establish operations itself in the Company's
markets. Each Franchise Agreement, however, provides that BEC shall not operate
or grant a franchise within a specified territory surrounding the Blockbuster
location covered by such Franchise Agreement for a 20 year period beginning on
the date of such Franchise Agreement.
CONTROL OF THE COMPANY BY THE PRINCIPAL SHAREHOLDERS
As a result of their beneficial ownership of Holdings, which owns all the
issued and outstanding common stock of the Company, the Principal Shareholders
have the ability to exercise control over the business and affairs of Holdings
by virtue of their continuing ability to elect a majority of Holdings' Board of
Directors and their voting power with respect to actions requiring stockholder
approval. By virtue of their control of Holdings, the Principal Shareholders
have the ability to exercise similar control over the business and affairs of
the Company and its subsidiaries.
RISK OF FRAUDULENT TRANSFER LIABILITY
The proceeds of the issuance of the Initial Notes have been used to repay
certain indebtedness (the "Acquisition Indebtedness") of the Company incurred in
connection with the Acquisition. Management of the Company believes that the
Acquisition Indebtedness was incurred for proper purposes and in good faith, and
that, based on forecasts, asset valuations and other financial information, the
Company, both before and after the consummation of the Acquisition, was solvent,
had sufficient capital for carrying on its business and expected to be able to
pay its debts as they matured. Notwithstanding management's belief, if a court
of competent jurisdiction in a suit by an unpaid creditor or a representative of
creditors (such as a trustee in bankruptcy or a debtor-in-possession) were to
find that, at the time of the incurrence of such Acquisition Indebtedness, the
Company was insolvent, was rendered insolvent by reason of such incurrence, was
engaged in a business or transaction for which its remaining assets constituted
unreasonably small capital, intended to incur, or believed that it would incur,
debts beyond its ability to pay as such debts matured, or intended to hinder,
delay or defraud its creditors, such court could avoid or cause the
subordination of such indebtedness. A likely consequence of such action by the
court would be the avoidance, or the subordination to existing and future
indebtedness of the Company, of the Notes (to the extent the proceeds of the
Notes were used to repay Acquisition Indebtedness).
15
<PAGE> 21
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The Notes have been issued with original issue discount ("OID") within the
meaning of Section 1273(a) of the Internal Revenue Code of 1986, as amended.
Holders of obligations issued with OID must include such OID in gross income for
federal income tax purposes as it accrues, in advance of the receipt of the cash
attributable to such income, under a method that takes into account the
compounding of interest. See "Taxation."
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Company does not intend to apply for listing of the Notes on any
national securities exchange. There is currently a trading market for the
Existing Notes. The Notes bear the same interest rate and have the same terms as
the Existing Notes. However, because of the discount at which the Notes have
been issued, the Notes carry OID and have different tax characteristics than the
Existing Notes and may trade differently from the Existing Notes. See
"Taxation." Although the Initial Purchasers currently intend to make a market in
the Notes, they are not obligated to do so, and any such market-making may be
discontinued at any time without notice, in their sole discretion. Accordingly,
no assurance can be given as to the liquidity of, or the existence of trading
markets for, the Notes.
USE OF PROCEEDS OF THE EXCHANGE NOTES
This Exchange Offer is intended to satisfy certain obligations of the
Company under the Registration Rights Agreement. The Company will not receive
any proceeds from the issuance of the Exchange Notes offered hereby. In
consideration for issuing the Exchange Notes as contemplated in this Prospectus,
the Company will receive, in exchange, Initial Notes in like principal amount.
The form and terms of the Exchange Notes are identical in all material respects
to the form and terms of the Initial Notes, except as otherwise described herein
under "The Exchange Offer -- Terms of the Exchange Offer." The Initial Notes
surrendered in exchange for the Exchange Notes will be retired and cancelled and
cannot be reissued. Accordingly, issuance of the Exchange Notes will not result
in any increase in the outstanding debt of the Company.
16
<PAGE> 22
CAPITALIZATION
Set forth below is the historical consolidated capitalization of the
Company and the pro forma consolidated capitalization of the Company as of
January 25, 1997, assuming that the Refinancing Plan was completed on that date.
The capitalization information set forth below should be read in conjunction
with the Consolidated Financial Statements of the Company appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AS OF
JANUARY 25, 1997
----------------------
ACTUAL PRO FORMA
-------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Short-term borrowing......................................... $ 7,000 $ --
Current maturities(1)........................................ 18,867 8,117
Notes payable to a related party............................. 10,000 --
-------- --------
Total short-term debt..................................... 35,867 8,117
Long-term debt:
Old Bank Credit Agreement.................................... 61,227 --
Existing Notes............................................... 180,000 180,000
9 1/2% Series B Senior Notes due 2003(2)..................... -- 76,713
Payable to a Puerto Rico government agency................... 10,000 10,000
Capital lease obligations, net of current portion............ 8,110 8,110
-------- --------
Total long-term debt, net of current portion.............. 259,337 274,823
-------- --------
Total debt................................................ 295,204 282,940
Total stockholder's equity(3).................................. 32,981 29,744
-------- --------
Total capitalization........................................... $328,185 $ 312,684
======== ========
</TABLE>
- ---------------
(1) Includes $7,500 of notes payable to a Puerto Rico government agency, $10,750
of indebtedness under the Old Bank Credit Agreement and $617 of current
obligations under capital leases.
(2) Reflects the issuance of the Initial Notes at a discount of $8,287.
(3) Pro forma stockholder's equity includes an extraordinary $5.3 million
write-off of unamortized fees in connection with the Old Bank Credit
Agreement, which has been tax effected.
17
<PAGE> 23
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SALES PER SELLING SQUARE FOOT AMOUNTS)
The selected financial data below for the fiscal years ended January 28,
1995, January 27, 1996 and January 25, 1997 are derived from the Consolidated
Financial Statements that have been audited by Deloitte & Touche LLP,
independent auditors, and are included elsewhere in this Prospectus. The
selected financial data below for the fiscal years ended January 30, 1993 and
January 29, 1994 are derived from audited financial statements of the Company's
predecessor and the Company that are not included herein. See note 3 below. The
pro forma financial data is provided for information purposes only, is unaudited
and is not necessarily indicative of future operating results or financial
condition or what the operating results or financial condition would have been
had the Refinancing Plan actually been consummated as of the beginning of the
period or as of the balance sheet date indicated. The information set forth
below should be read in conjunction with the Consolidated Financial Statements
included elsewhere herein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" which discusses, among other things, the
closing of the Company's Florida operations in fiscal 1996.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1)
-----------------------------------------------------------------------------------
PRO FORMA
JANUARY 30, JANUARY 29, JANUARY 28, JANUARY 27, JANUARY 25, JANUARY 25,
1993(2) 1994(3) 1995 1996 1997 1997(4)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................... $1,251,726 $1,199,123 $1,166,955 $1,145,370 $1,020,056 $1,020,056
Gross profit................ 303,158 295,273 295,819 296,880 259,727 259,727
Selling, general and
administrative
expenses(5)............... 232,202 230,266 229,197 240,219 213,485 213,485
Unusual charges(6).......... -- -- -- 32,161 4,160 4,160
Operating profit (loss)..... 41,307 27,357 22,757 (19,169) 954 954
Interest expense, net....... 13,047 21,635 32,153 33,346 30,182 30,288
Net income (loss)........... 15,922 (9,751) (4,641) (32,357) (16,918) (16,983)
BALANCE SHEET DATA (AT END
OF PERIOD):
Cash and cash
equivalents(7)............ $ 7,838 $ 5,471 $ 15,680 $ 6,928 $ 12,148 $ 5,566
Working capital (deficit)... (8,478) (26,873) (11,534) (31,125) (56,217) (42,979)
Fixed assets, net........... 168,395 224,605 207,935 166,283 150,915 150,915
Total assets................ 300,012 619,625 602,695 573,383 522,740 507,239
Total debt.................. 123,686 347,124 329,855 308,497 295,204 282,940 (8)
Total liabilities........... 251,938 552,728 525,439 528,484 489,759 477,495
Stockholder's equity........ 48,074 66,897 77,256 44,899 32,981 29,744
OTHER DATA:
EBITDA (as defined)(9)...... $ 70,956 $ 65,007 $ 66,622 $ 56,661 $ 50,391 (10) $ 50,391 (10)
Cash flow used in investing
activities................ (16,089) (330,192) (15,707) (21,832) (1,364) (13,628)
Cash flow provided by (used
in) financing
activities................ (23,662) 300,580 (1,877) (10,915) (8,298) 1,702
Cash flow provided by
operating activities...... 42,027 27,249 27,793 24,065 14,812 10,494
Depreciation and
amortization.............. 29,649 37,650 43,865 43,669 41,128 41,128
Capital expenditures........ 22,472 23,493 16,401 22,334 14,455 14,455
EBITDA (as defined)
margin(9)................. 5.7 % 5.4 % 5.7 % 4.9 % 4.9 % 4.9 %
Ratio of earnings to fixed
charges(11)............... 2.7 x -- -- -- -- --
Ratio of total debt to
EBITDA (as defined)....... 5.6 x
Cash interest expense....... $ 28,129
Ratio of EBITDA (as defined)
to cash interest
expense................... 1.8 x
</TABLE>
18
<PAGE> 24
<TABLE>
<CAPTION>
FISCAL YEAR(1)
--------------------------------------------------------
1993(2) 1994(3) 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PUEBLO AND XTRA STORE DATA
PUERTO RICO
Number of stores (at fiscal year-end).......... 40 42 44 46 44
Average sales per store(12).................... $ 21,065 $ 20,777 $ 19,797 $ 19,808 $ 19,672
Average selling square footage................. 26,405 26,576 26,031 27,055 27,652
Average sales per selling square foot(12)...... $ 798 $ 782 $ 761 $ 732 $ 711
Total sales.................................... 850,139 860,190 874,019 877,603 886,765
Same store sales % change...................... 9.2% (0.9)% (1.3)% (2.8)% (2.6)%
U.S. VIRGIN ISLANDS
Number of stores (at fiscal year-end).......... 5 5 5 6 6
Average sales per store(12).................... $ 19,594 $ 19,003 $ 15,619 $ 14,952 $ 15,110
Average selling square footage................. 20,724 20,724 20,724 20,625 20,104
Average sales per selling square foot(12)...... $ 945 $ 917 $ 754 $ 725 $ 752
Total sales.................................... 97,970 95,014 78,097 76,813 90,659
Same store sales % change...................... 0.9% (1.2)% (17.8)% (3.3)% 7.0%
BLOCKBUSTER STORE DATA:
Number of stores (at fiscal year-end).......... 19 21 22 22 27
Average sales per store(12).................... $ 1,206 $ 1,123 $ 1,254 $ 1,443 $ 1,588
Average weekly sales........................... 443 467 535 608 794
Total sales.................................... 16,763 23,189 26,994 31,295 35,938
Same store sales % change...................... (3.5)% (8.1)% 10.9% 14.0% 10.5%
</TABLE>
- ---------------
(1) Operating activity for the 26 weeks ended January 29, 1994 and for the
fiscal years 1995, 1996 and 1997 are representative of the Company
subsequent to the Acquisition. All other operating activity pertains to
Pueblo prior to the Acquisition.
(2) Fiscal 1993 was a 53-week year.
(3) Represents the combined results of operations for the 26-week period ended
July 31, 1993 of the Company's predecessor prior to the Acquisition and the
26-week period ended January 29, 1994 of the Company. The results for each
26 week period are as follows:
<TABLE>
<CAPTION>
26 WEEKS ENDED 26 WEEKS ENDED
JULY 31, 1993 JANUARY 29, 1994
-------------- ----------------
<S> <C> <C>
Net sales..................................... $612,454 $586,669
Gross profit.................................. 150,961 144,312
Store operating, selling and administrative
expenses.................................... 117,738 112,528
Operating profit.............................. 17,478 9,879
Interest expense, net......................... 5,533 16,102
Net income (loss)............................. (5,148) (4,603)
EBITDA (as defined)........................... 33,223 31,784
Depreciation and Amortization................. 15,745 21,905
</TABLE>
(4) Pro forma income statement data reflect changes in interest expense and
assume completion of the Refinancing Plan as of the first day of fiscal
1997. Pro forma balance sheet data include an extraordinary $5.3 million
write-off of unamortized fees in connection with the Old Bank Credit
Agreement, which has been tax effected, and assume completion of the
Refinancing Plan as of January 25, 1997.
(5) Selling, general and administrative expenses for fiscal years 1996 and 1997
include certain expenses and charges related to the implementation of the
Company's strategic initiatives and other matters. See "Management's
Discussion and Analysis of Financial Conditions and Results of
Operations -- General."
19
<PAGE> 25
(6) The Company recorded unusual charges of approximately $30 million in fiscal
1996 and $4.2 million in fiscal 1997 as a result of the Company's exit from
the Florida market and an unusual charge of $2.2 million in fiscal 1996 as
a result of the Company's restructuring of its Puerto Rico operations.
(7) Highly liquid investments purchased with a maturity of three months or less
are considered cash equivalents.
(8) Reflects the issuance of the Initial Notes at a discount.
(9) EBITDA (as defined) represents income (loss) before interest, income taxes,
sundry, depreciation and amortization and unusual charges. In fiscal 1997,
income taxes included $1.5 million representing the tax effect of the
cumulative effect of a change in accounting principle relating to the
adoption of SFAS No. 121 during such fiscal year. See Note 1 to Notes to
Consolidated Financial Statements. EBITDA (as defined) is not intended to
represent cash flow from operations as defined by generally accepted
accounting principles and should not be considered as an alternative to net
income (loss) as an indication of the Company's operating performance or to
cash flows as a measure of liquidity. EBITDA (as defined) is included as it
is the basis upon which the Company assesses its financial performance.
EBITDA (as defined) margin represents EBITDA (as defined) divided by net
sales.
(10) EBITDA (as defined) includes $1.1 million in severance costs recorded in
connection with the elimination of 440 store employees during the fourth
quarter of fiscal 1997 and associated salaries and benefits totalling $8.7
million paid to or on behalf of these employees for fiscal 1997.
(11) In calculating this ratio, earnings consist of income (loss) before income
taxes, extraordinary item and cumulative effect of a change in accounting
principle, plus fixed charges adjusted to exclude interest capitalized.
Fixed charges consist of interest whether expensed or capitalized,
capitalized lease interest expense and amortization of deferred financing
fees, whether expensed or capitalized, plus the portion of rental expense
under operating leases which has been deemed by the Company to be
representative of the interest factor. Earnings were insufficient to cover
fixed charges by $5.6 million, $9.4 million, $52.6 million and $29.1
million in fiscal years 1994, 1995, 1996 and 1997, respectively. During
fiscal years 1996 and 1997, earnings were adversely affected by a number of
unusual charges and other items related to the implementation of the
Company's strategic initiatives and other matters. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General."
(12) For all periods presented, average sales are weighted for the period of
time stores are open during the year.
20
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's consolidated financial condition
and results of operations should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
GENERAL
The Company was organized in 1993 to acquire Pueblo in the Acquisition. In
connection with the Acquisition, the Company incurred significant indebtedness
and recorded significant goodwill. Following the Acquisition, the Company
continued an existing operating strategy designed to significantly expand its
supermarket penetration through new supermarket openings in Puerto Rico and
Florida and new Blockbuster locations in Puerto Rico. The number of the
Company's supermarkets in Puerto Rico and the U.S. Virgin Islands grew from 46
to 50 and the number of the Company's Blockbuster locations (including
conversions) grew from 20 to 27, in each case measured from the Acquisition
through the end of fiscal 1997. In addition, the Company added one new
supermarket in Florida after the Acquisition which was subsequently closed in
fiscal 1997, as described below. From the Acquisition through fiscal 1997, the
Company made capital expenditures totalling $67.1 million, of which $61.3
million related to Puerto Rico and the U.S. Virgin Islands.
Throughout this time period, the Company's markets have been affected by an
increasing level of competition from local supermarket chains, independent
supermarkets, warehouse club stores, discount drug stores and convenience
stores. Warehouse club stores and mass merchandisers, which have entered the
Puerto Rico and U.S. Virgin Islands markets since 1990 offering various bulk
grocery and general merchandise items, have increased pricing pressures on
grocery retailers including the Company. In addition, low inflation in food
prices in recent years has made it difficult for the Company and other grocery
store operators to increase prices and has intensified the competitive
environment by causing such retailers to emphasize promotional activities and
discount pricing to maintain or gain market share. The South Florida market, in
particular, has been characterized by intense competition that negatively
affected the performance of the Company's stores in that market through fiscal
1996.
The Company's focus since the Acquisition on new supermarket development
rather than supermarket operations, as well as the effects of increased
competition, resulted in declines in net sales (from $1,199.1 million in fiscal
1994 to $1,020.1 million in fiscal 1997), same store sales (from $931.3 million
in fiscal 1994 to $861.1 million in fiscal 1997), and consolidated operating
results (from $27.4 million in fiscal 1994 to $1.0 million in fiscal 1997). The
declining operating results together with the Company's high level of interest
expense resulting from its significant indebtedness resulted in annual net
losses since fiscal 1994.
In October 1995, William T. Keon, III was named President and Chief
Executive Officer of the Company. Following his arrival at the Company, Mr. Keon
conducted a thorough review of the Company's operating business practices and
its financial performance. As a result of such review, the Company determined in
January 1996 to discontinue its retail operations in the competitive Florida
market in order to focus on its core markets where it has a stronger competitive
position and greater profit opportunities. In the spring of 1996, management
also began to take several other actions designed to improve the financial
performance of the Company, including the conversion of five Pueblo stores to
the Xtra format, the closing of two underperforming Xtra stores in Puerto Rico,
an increase in the Company's advertising expenditures in Puerto Rico and the
conversion of six Pueblo Video Clubs into in-store Blockbuster outlets.
In the summer of 1996, in conjunction with the implementation of the
Company's revised business strategy, the Company retained a retail industry
consulting firm to assist management in analyzing the Company's operating
practices. One result of such analysis was the reorganization of labor
scheduling practices, which enabled the Company to eliminate 440 store employees
in January 1997 and reduce annual labor costs by approximately $9.0 million. It
is management's belief that the decision to exit the Florida market, together
with the actions which the Company began to take in the spring of 1996 and the
implementation of its revised business strategy, has begun to contribute, and
should continue to contribute, toward improved operating results.
21
<PAGE> 27
Other strategic measures being undertaken by the Company include: (i)
continual evaluation of Pueblo store formats relative to the markets they serve
for potential future conversions to Xtra stores; (ii) continued conversion of
its remaining Pueblo Video Clubs to Blockbuster outlets and (iii) other interior
store changes to increase customer traffic, such as in-store banking and
in-store fast food restaurants for select locations. The Company believes that
these strategic measures will be an effective means of improving sales by
increasing customer traffic in its supermarkets. See "Business -- Business
Strategy."
In connection with the strategic initiatives begun in January 1996 the
Company has incurred a number of unusual charges and other items that have
adversely affected the Company's operating profit, including the following items
which aggregated $36.1 million in fiscal 1996 and $12.3 million in fiscal 1997.
The Company recorded unusual charges of approximately $30.0 million in fiscal
1996 and $4.2 million in fiscal 1997 as a result of the Company's exit from the
Florida market, and an unusual charge of $2.2 million in fiscal 1996 as a result
of the Company's restructuring of its Puerto Rico operations. See Note 2 of
Notes to Consolidated Financial Statements. Other items which adversely affected
the Company's operating profit and were related to the implementation of the
Company's strategic initiatives included the following, which aggregated $3.9
million in fiscal 1996 and $8.1 million in fiscal 1997. In fiscal 1996, an
adjustment to the net realizable value of certain non-operating real property in
Puerto Rico caused a charge of $3.9 million. In fiscal 1997, as a result of the
adoption of SFAS No. 121, the Company recognized operating losses of $4.1
million (or $2.7 million net of deferred taxes) from the discontinued Florida
operations, as discussed below. See Note 1 of Notes to Consolidated Financial
Statements. In addition, in fiscal 1997, the elimination of 440 store employees
resulted in a charge of approximately $1.1 million in severance costs and the
closing of two Puerto Rico stores resulted in a $2.9 million charge.
In addition, the Company established reserves totalling $5.3 million during
fiscal years 1994 through 1997, including $3.1 million and $1.2 million in
fiscal years 1996 and 1997 relating to the costs, including legal fees,
associated with the recently settled Premium Sales litigation described under
"Business -- Legal Proceedings."
The Company has no operations of its own, and its only assets are its
equity interest in Pueblo and intercompany notes issued to the Company by its
subsidiaries in connection with its investment of the net proceeds of the
Existing Notes and the Notes. The Company has no source of cash to meet its
obligations, including its obligations under the Existing Notes and the Notes,
other than payments by its subsidiaries on such intercompany notes, which are
restricted and effectively subordinated to Pueblo's obligations under the New
Bank Credit Agreement, and dividends from its subsidiaries. The New Bank Credit
Agreement contains an exception to the restriction on the payment of dividends
which provides that so long as no Default or Event of Default exists, or would
exist as a result thereof, Pueblo is permitted to pay cash dividends to the
Company in an aggregate amount necessary to pay interest on the Notes then due
and payable in accordance with the terms thereof.
RESULTS OF OPERATIONS
Adjustments for Florida Closing
In fiscal 1996, the Company determined to discontinue its retail operations
in Florida. The effective date of the Florida closing was December 30, 1995. All
eight of the Xtra stores in Florida were closed in the first quarter of fiscal
1997. The following table presents selected comparative operating data of the
Company for
22
<PAGE> 28
the three fiscal years ended January 25, 1997 after excluding the Florida retail
division (the "Continuing Business"):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 28, JANUARY 27, JANUARY 25,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
SELECTED OPERATING RESULTS OF THE PUERTO RICO AND
U.S. VIRGIN ISLANDS OPERATIONS: (dollars in
thousands)
Net sales........................................ $ 979,110 $ 985,711 $ 1,013,363
Gross profit..................................... 250,810 259,508 259,291
Selling, general and administrative expense...... 186,861 201,402 208,900
EBITDA(1)(as defined)............................ 63,949 58,106 50,391
Depreciation and amortization.................... 38,418 39,075 41,128
Operating profit................................. 25,531 16,748 9,263
SELECTED OPERATING RESULTS OF THE PUERTO RICO AND
U.S. VIRGIN ISLANDS OPERATIONS: (as a
percentage of sales)
Gross profit..................................... 25.6% 26.3% 25.6%
Selling, general and administrative expenses..... 19.1 20.4 20.6
EBITDA(1)(as defined)............................ 6.5 5.9 5.0
Operating profit................................. 2.6 1.7 0.9
</TABLE>
- ---------------
(1) EBITDA (as defined) represents income (loss) before interest, income taxes,
sundry, depreciation and amortization and unusual charges. EBITDA (as
defined) is not intended to represent cash flow from operations as defined
by generally accepted accounting principles and should not be considered as
an alternative to net income (loss) as an indication of the Company's
operating performance or to cash flows as a measure of liquidity. EBITDA (as
defined) is included as it is the basis upon which the Company assesses its
financial performance.
Fiscal 1997 vs. Fiscal 1996
As of January 25, 1997, the Company operated a total of 50 supermarkets and
27 Blockbuster locations in Puerto Rico and the U.S. Virgin Islands. During
fiscal 1997, the Company closed all eight of its Xtra stores and its
distribution facility in Florida as part of the disposal of the Company's
Florida retail operations. For further details of the Florida closing, see Note
2 to Notes to Consolidated Financial Statements. In addition, in fiscal 1997,
the Company closed two underperforming Xtra stores in Puerto Rico, converted
five Pueblo stores to Xtra stores in Puerto Rico, and converted four Pueblo
Video Clubs into in-store Blockbuster outlets in Puerto Rico.
Fiscal 1997 net sales decreased by $125.3 million or 10.9% from $1,145.4
million in the prior year to $1,020.1 million. A primary factor in the overall
sales reduction was the closing of the Florida retail operations, which had
sales of $6.7 million and $159.7 million in fiscal 1997 and fiscal 1996,
respectively. Net sales from the Continuing Business increased by $27.7 million
or 2.8% in fiscal 1997 over fiscal 1996. Of this increase, 83% was attributable
to supermarket sales and 17% was attributable to Blockbuster operations. In
fiscal 1997, same store sales, or sales for stores open in comparable 52-week
periods for the Continuing Business, decreased by $13.3 million or 1.4%, as
compared to a same store sales decline for the Continuing Business of $22.9
million or 2.4% in fiscal 1996. This decline reflected a same store sales
decrease for the year of $21.6 million or 2.6% in the Company's Puerto Rico
supermarket operations (which represent approximately 87.5% of the Company's
total sales) as competition continued to adversely affect the operating
division's sales performance. However, the Company's Puerto Rico supermarket
operations experienced an increase in same store sales of $6.9 million or 3.4%
in the fourth quarter of fiscal 1997 compared to the fourth quarter of fiscal
1996. U.S. Virgin Islands supermarket operations experienced a same store sales
increase for fiscal 1997 of $5.3 million or 7.0%. Blockbuster operations
experienced a same store sales increase for fiscal 1997 of $3.0 million or
10.5%.
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<PAGE> 29
Gross profit margin in fiscal 1997, as a percentage of sales, was 25.5% or
0.4% below the 25.9% in the prior year. Gross margin for the Continuing Business
decreased 0.7% from 26.3% in fiscal 1996 to 25.6% in fiscal 1997. The primary
factor in this decline was the 4.7% decline in the meat department gross margin
from the prior year in the Puerto Rico supermarkets. The decline in meat margins
was principally the result of a reduction in prices due, in part, to
competition, partially offset by a reduction in shrinkage in the meat
department. The decrease in gross margin was partially offset by improved
margins in the Blockbuster operations.
Selling, general and administrative expenses decreased from the prior year
amount of $240.2 million to $213.5 million, or 11.1%, primarily as a result of
the closing of the Florida operations. Selling, general and administrative
expenses, as a percentage of sales, was 20.9% in fiscal 1997, which was
comparable to that of fiscal 1996. Selling, general and administrative expenses
from the Continuing Business increased from $201.4 million to $208.9 million, or
as a percentage of sales, increased 0.2% from 20.4% in fiscal 1996 to 20.6% in
fiscal 1997. Major factors contributing to the increase were (a) a $2.9 million
charge for the closing of two Xtra stores in Puerto Rico, (b) a $2.7 million
increase in advertising expenditures for the Continuing Business, (c) $1.9
million in consulting fees arising from an ongoing project to improve
supermarket operations in Puerto Rico and (d) $1.1 million in severance costs
recorded in connection with the elimination of 440 store employees in Puerto
Rico.
Depreciation and amortization decreased $2.6 million from $43.7 million in
fiscal 1996 to $41.1 million in fiscal 1997, primarily as a result of the
closing of the Florida operations. Depreciation and amortization from the
Continuing Business increased $2.0 million from $39.1 million in fiscal 1996 to
$41.1 million in fiscal 1997. The increase was due mainly to the full year of
depreciation on fiscal 1996 capital expenditures of $21.8 million. In addition,
the Company recorded an additional $600,000 in depreciation related to a change
in estimated life of its shopping carts. Interest expense, net of interest and
investment income, of $30.1 million decreased by $3.2 million, or 9.5%, as
compared to fiscal 1996. This decrease is primarily due to a reduction in
interest on capital lease obligations resulting from the Florida closing
combined with lower interest rates and principal amortization on the term loans
under the Old Bank Credit Agreement, partially offset by increased short-term
borrowing during fiscal 1997.
In fiscal 1996, the Company, under then applicable accounting principles,
recorded an unusual charge of $30.0 million, including estimated operating
losses for the phase-out period in fiscal 1997 related to the discontinued
Florida operations. In fiscal 1997, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of". Pursuant to the requirements of this statement, the Company's
results of operations in fiscal 1997 included operations of the Florida stores
for the phase-out period in fiscal 1997. The recognition of these operations
negatively affected the Company's operating profit by $4.1 million in fiscal
1997. Furthermore, in accordance with SFAS No. 121, the Company recorded the
cumulative effect of a change in accounting principle of $2.7 million (net of
deferred income taxes of $1.5 million), the effect of which was to offset the
Florida operating losses recorded in fiscal 1997, as described above. See Notes
1 and 2 to Notes to the Consolidated Financial Statements. In addition, the
Company recorded $4.2 million in unusual charges in fiscal 1997 to write down
assets from the Florida operations in order to reflect a revised estimate of the
fair value of the remaining properties held for sale.
In fiscal 1996, the assets relating to the Florida retail operations were
written down to their estimated net realizable value of $26.0 million. During
fiscal 1997, as part of the Florida closing, the Company sold two Xtra stores
and certain store equipment for $11.8 million. In addition, the Company recorded
$4.2 million in unusual charges to write down assets from the Florida operations
in order to reflect a revised estimate of the fair value of the remaining
properties held for sale. Furthermore, the Company decided to sell two owned
real estate parcels in Puerto Rico with a book value of $3.8 million. Management
estimates that the fair value of these assets exceeds their book value.
The decrease in the income tax benefit of $10.7 million was primarily the
result of the tax effects of the $30.0 million charge for the Florida disposal
that was recorded in fiscal 1996.
24
<PAGE> 30
Results for fiscal 1997 were a net loss of $16.9 million, as compared to a
net loss of $32.4 million for fiscal 1996.
Fiscal 1996 vs. Fiscal 1995
As of January 27, 1996, the Company operated 60 supermarkets and 22
Blockbuster locations throughout Puerto Rico, the U.S. Virgin Islands and
Florida. During fiscal 1996, the Company closed one small Pueblo store and
opened three new Xtra stores in Puerto Rico. In addition, the Company opened one
new Pueblo store, which it purchased from a competitor, in the U.S. Virgin
Islands.
Net sales decreased by $21.6 million, or 1.8%, in comparison to the prior
year. Sales of approximately $12.5 million related to Florida retail operations
subsequent to December 30, 1995 (the effective date of closing for accounting
purposes) are included in unusual charges in the consolidated statement of
operations for fiscal 1996. Additionally, sales derived from fiscal 1996 new
store openings were $18.2 million. Same store sales, or sales for stores open in
comparable 52-week periods, decreased by $37.3 million or 3.3%. This reflects
the effects of increased competition as same store sales decreases were
experienced in all supermarket operating divisions. The Puerto Rico supermarket
operations, the major contributor to total company sales (with approximately
77.0% of the total), reflected a same store sales decrease for the year of $23.9
million or 2.8%. The effects of competitors' new store openings in the U.S.
Virgin Islands were fully cycled during the fourth quarter of fiscal 1996 as
indicated by a same store sales increase of $0.7 million or 3.8% in the U.S.
Virgin Islands for the 12-week period ended January 27, 1996, although such same
store sales decreased $2.6 million or 3.3% for the entire fiscal year. Fiscal
1996 Blockbuster video operations experienced a same store sales increase of
$3.5 million or 14.0% over the prior year.
Although the Company's operations in the U.S. Virgin Islands were hindered
by Hurricane Marilyn, there were no material net losses in property due to the
adequacy of insurance coverage maintained by the Company. Most stores were
re-opened (with temporary repairs) within a few days of being hit by the
hurricane to ensure that residents could get the necessary food and supplies.
Gross profit margin, as a percentage of sales, was 0.6% greater than that
of the prior year primarily due to a reduction in retail shrink and selective
price increases.
Selling, general and administrative expenses, as a percentage of sales,
increased by 1.3% for fiscal 1996 principally due to higher direct store selling
expenses. Major factors contributing to the increase were (a) higher labor costs
partly caused by selected increases in customer service levels in Puerto Rico as
well as costs associated with the implementation of the frequent shopping
program in Florida through December 30, 1995, the effective closing date of the
Florida operating division, (b) increased advertising and legal costs, (c)
higher repairs and maintenance combined with the fixed nature of certain store
expenses such as rent and utilities and (d) an adjustment to net realizable
value for certain non-operating property in Puerto Rico in the amount of $3.9
million.
Depreciation and amortization for fiscal 1996 was comparable to that of
fiscal 1995.
Interest expense of $33.3 million, net of interest and investment income,
increased by $1.2 million, or 3.7%, primarily due to bank financing fees
incurred during the fiscal year.
During fiscal 1996, the Company recorded unusual charges of $32.2 million.
These unusual charges included the following: (i) estimated operating losses
during the phase-out period of the Florida retail operations of $6.2 million
(including $2.1 million during fiscal 1996 subsequent to the measurement date of
December 30, 1995); (ii) a reduction of assets relating to the Florida retail
operations to their estimated net realizable value of $12.6 million; (iii) the
recognition of net future lease obligations relating to the Florida retail
operations of $7.1 million; (iv) employee termination benefits relating to the
Florida retail operations of $1.7 million; (v) other costs relating to the
disposal of the Florida retail operations of $2.4 million; and (vi) costs of
$2.2 million relating to the restructuring of certain Puerto Rico operating
functions. See Note 2 of Notes to Consolidated Financial Statements.
25
<PAGE> 31
During fiscal 1996, the Company reclassified $26.0 million into assets held
for sale from property, plant and equipment. This represented management's
estimated fair value of the remaining properties (four Xtra stores at $25.5
million and equipment of $0.5 million) held for sale due to the closing of the
Florida retail operations.
The increase in the income tax benefit of $15.4 million was primarily the
result of the tax effects of the Florida closing, the majority of which is
deferred.
Net results for fiscal 1996 reflect a net loss of $32.4 million as compared
to a net loss of $4.6 million for fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity for the Company's operational needs has historically been
provided by cash flow from operations, along with funds available under the Old
Bank Credit Agreement. The Company believes that the consummation of the
Refinancing Plan has enhanced the Company's liquidity resources.
Cash provided by operating activities was $14.8 million, $24.1 million and
$27.8 million in fiscal 1997, fiscal 1996 and fiscal 1995, respectively. The
major factor contributing to the reduction in net cash provided by operating
activities for fiscal 1997 was net cash outlays totaling $17.0 million related
to the Florida closing (excluding proceeds from the sale of certain fixed assets
from the Florida retail operations).
Net cash used in investing activities was $1.4 million, $21.8 million, and
$15.7 million in fiscal years 1997, 1996, and 1995, respectively. The $20.4
million reduction in cash used in investing activities pertains primarily to
$11.8 million received in fiscal 1997 for the sale of two Xtra stores and
certain store equipment in Florida as part of the Florida closing, coupled with
a net $7.4 million reduction in expenditures from the capital program. Total
capital expenditures, net of proceeds from disposals, were $14.4 million, $21.8
million, and $15.7 million during fiscal years 1997, 1996, and 1995,
respectively.
Working capital during fiscal 1997 decreased $25.1 million from a deficit
of $31.1 million at the end of fiscal 1996 to a deficit of $56.2 million at the
end of fiscal 1997. A decrease in assets held for sale and deferred income
taxes, and the inclusion of notes payable to a related party in current
liabilities, contributed to the decrease in working capital.
As of January 25, 1997 the Company had borrowings outstanding under the Old
Bank Credit Agreement consisting of $63.0 million in term loans and $16.0
million in revolving loans. The Company amended the Old Bank Credit Agreement as
of January 25, 1997 to increase the revolving facility by $10.0 million and to
amend certain restrictive covenants in order to permit the Company to maintain
its compliance with such covenants. The outstanding indebtedness under the Old
Bank Credit Agreement was repaid pursuant to the Refinancing Plan. In connection
with the Offering, Pueblo entered into the New Bank Credit Agreement which was
provided for a $65.0 million revolving credit facility and less restrictive
covenants compared to the Old Bank Credit Agreement. After the issuance of
standby letters of credit in the amount of $23.3 million, Pueblo has borrowing
availability on a revolving basis of $41.7 million under the New Bank Credit
Agreement. See "Description of New Bank Credit Agreement". The Company believes
that the completion of the Refinancing Plan has provided it with extended debt
maturities, increased liquidity and less restrictive financial covenants, which
will give it increased operating and financial flexibility.
Outstanding borrowings with a governmental agency of Puerto Rico from the
issuance of industrial revenue bonds were $17.5 million as of January 25, 1997,
including $7.5 million of principal payments due in the current fiscal year.
Management anticipates that the principal payments due will be financed by
operations.
The Company's general liability and certain of its workers compensation
insurance programs are self-insured. The Company maintains insurance coverage
for claims in excess of $250,000. The current portion of the reserve,
representing amounts expected to be paid in the next fiscal year, is $6.7
million as of January 25, 1997 and is anticipated to be funded with cash
provided by operating activities.
26
<PAGE> 32
Capital expenditures for fiscal 1998 are expected to be approximately $11.1
million. This capital program, which is subject to continuing change and review,
includes the conversion of ten Pueblo Video Clubs to in-store Blockbuster
outlets, the opening of three new Blockbuster stores and the remodeling of
certain existing locations.
Since the Acquisition, Holdings and its affiliates have supplemented the
Company's capital resources. In April 1996, the Company received a contribution
of $5.0 million from Holdings, which it used to reduce amounts outstanding under
the Old Bank Credit Agreement. In addition, on October 18, 1996, Holdings
provided $10.0 million in additional funds to the Company in return for a
non-interest bearing redeemable note payable to a related party. This $10.0
million in additional funds was used to reduce amounts outstanding under the Old
Bank Credit Agreement. Concurrent with the Offering, the Company satisfied this
indebtedness by transferring its interest in two real estate properties from its
discontinued Florida operations to Holdings. The Company believes its interest
in these properties had a fair market value of no more than $10.0 million.
The Company believes that the facilities provided by the New Bank Credit
Agreement, together with cash flow from operations, will be adequate for its
liquidity and capital resource needs, including the debt service requirements on
the Existing Notes and the Notes. However, the Company's ability to generate
adequate cash flow from operations will depend on its future operating
performance and financial results, which will be subject to successful
implementation of its business strategy as well as economic, financial,
competitive and other factors beyond its control. In the event that the Company
is unable to generate adequate cash flow, there is no assurance that Holdings or
any of its affiliates would be willing to provide additional capital or
liquidity resources to the Company.
27
<PAGE> 33
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Pursuant to the Registration Rights Agreement between the Company and the
Initial Purchasers, the Company has agreed to (i) file on or prior to the 30th
calendar day following April 29, 1997 ("the Closing Date") a registration
statement with respect to a registered offer to exchange the Initial Notes for a
new issue of debt securities of the Company to be issued under the Indenture in
the same aggregate principal amount as and with terms that will be identical in
all respects to the Initial Notes (except that the Exchange Notes will not
contain terms with respect to certain transfer restrictions, registration rights
and penalty interest provisions); (ii) use its best efforts to cause such
registration statement to be declared effective under the Securities Act on or
prior to 90th calendar day following the Closing Date and (iii) use its best
efforts to consummate the Exchange Offer on or prior to the 120th calendar day
following the Closing Date. In the event that applicable law or interpretations
of the staff of the Commission do not permit the Company to effect the Exchange
Offer, or for any reason the Exchange Offer is not consummated within 120 days
of the Closing Date, or in certain other circumstances, the Company will use its
best efforts to cause to become effective the Shelf Registration Statement with
respect to the resale of the Initial Notes and to keep the Shelf Registration
Statement effective until two years after the original issuance of the Initial
Notes. The interest rate on the Initial Notes is subject to increase under
certain circumstances if the Company is not in compliance with its obligations
under the Registration Rights Agreement. See "Initial Notes Registration
Rights."
Each holder of the Initial Notes who wishes to exchange such Initial Notes
for Exchange Notes in the Exchange Offer will be required to make certain
representations, including representations that (i) any Exchange Notes to be
received by it will be acquired in the ordinary course of its business, (ii) it
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes and (iii) it is not an "affiliate," as
defined in Rule 405 of the Securities Act, of the Company or, if it is an
affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. See "Initial Notes
Registration Rights."
RESALE OF EXCHANGE NOTES
The Company is making the Exchange Offer in reliance on the position of the
staff of the Commission as set forth in certain no-action letters addressed to
other parties in other transactions. However, the Company has not sought its own
no-action letter and there can be no assurance that the staff of the Commission
would make a similar determination with respect to the Exchange Offer as in such
other circumstances. Based upon these interpretations by the staff of the
Commission, the Company believes that Exchange Notes issued pursuant to this
Exchange Offer in exchange for Initial Notes may be offered for resale, resold
and otherwise transferred by a holder thereof other than (i) a broker-dealer who
purchased such Initial Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an "affiliate" (as defined in Rule 405 of the Securities Act) of
the Company without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of such Exchange Notes. Holders of Initial
Notes accepting the Exchange Offer will represent to the Company in the Letter
of Transmittal that such conditions have been met. Any holder who participates
in the Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes may not rely on the position of the staff of the Commission as
set forth in these no-action letters and would have to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it acquired the Initial
Notes as a result of market-making activities or other trading activities and
will deliver a prospectus in connection with any resale of such Exchange Notes.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with
28
<PAGE> 34
resales of Exchange Notes received in exchange for Initial Notes where such
Initial Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Letter of Transmittal states that by
acknowledging and delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" with in the meaning of the Securities Act. The
Company intends for a period of 180 days after the Expiration Date, to make this
Prospectus available to broker-dealers for use in connection with any such
resale. See "Plan of Distribution".
Except as aforesaid, this Prospectus may not be used for an offer to
resell, resale or other retransfer of Exchange Notes.
The Exchange Offer is not being made to, nor will the Company accept
tenders for exchange from, holders of Initial Notes in any jurisdiction in which
the Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will, unless such Initial Notes are withdrawn in accordance with the
withdrawal rights specified in "--Withdrawal of Tenders" below, accept any and
all Initial Notes validly tendered prior to 5:00 p.m. New York City time, on the
Expiration Date. The date of acceptance for exchange of the Old Notes, and
consummation of the Exchange Offer, is the Exchange Date, which will be the
first business day following the Expiration Date. The Company will issue, on or
promptly after the Exchange Date, an aggregate principal amount of up to
$85,000,000 of Exchange Notes in exchange for a like principal amount of
outstanding Initial Notes tendered and accepted in connection with the Exchange
Offer. The Exchange Notes issued in connection with the Exchange Offer will be
delivered on the earliest practicable date following the Exchange Date. Holders
may tender some or all of their Initial Notes in connection with the Exchange
Offer. However, Initial Notes may be tendered only in integral multiples of
$1,000.
The terms of the Exchange Notes are identical in all material respects to
the terms of the Initial Notes, except that the Exchange Notes have been
registered under the Securities Act and are issued free from any covenant
regarding transfer restrictions, and except that if the Exchange Offer is not
consummated, or a Shelf Registration Statement is not declared effective, by
August 27, 1997, the interest rate borne by the Initial Notes will increase by
0.5% per annum until the Exchange Offer is consummated (up to a maximum amount
of 1.50% per annum). The Exchange Notes will evidence the same debt as the
Initial Notes and will be issued under and be entitled to the same benefits
under the Indenture as the Initial Notes. As of the date of this Prospectus,
$85,000,000 aggregate principal amount of the Initial Notes is outstanding.
In connection with the issuance of the Initial Notes, the Company arranged
for the Initial Notes originally purchased by qualified institutional buyers to
be issued and transferable in book-entry form through the facilities of The
Depository Trust Company ("DTC"), acting as depositary. Except as described in
"Description of the Notes -- Book-Entry; Delivery and Form," the Exchange Notes
will be issued in the form of a global note registered in the name of DTC or its
nominee and each holder's interest therein will be transferable in book-entry
form through DTC. See "Description of the Notes -- Book-Entry; Delivery and
Form."
Holders of Initial Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer. Initial Notes which are not tendered for
exchange or are tendered but not accepted in connection with the Exchange Offer
will remain outstanding and be entitled to the benefits of the Indenture, but,
except for Initial Notes held by holders who are ineligible to tender, will not
be entitled to any registration rights under the Registration Rights Agreement.
The Company shall be deemed to have accepted validly tendered Initial Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purposes of receiving the Exchange Notes from the Company.
If any tendered Initial Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Initial Notes will be
29
<PAGE> 35
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Initial Notes in connection with the Exchange Offer will
not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Initial Notes in connection with the Exchange Offer. The Company
will pay all charges and expenses, other than certain applicable taxes described
below, in connection with the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1997, unless extended by the Company in its sole discretion, in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended.
The Company reserves the right, in its sole discretion (i) to delay
accepting any Initial Notes, to extend the Exchange Offer or to terminate the
Exchange Offer and to refuse to accept Initial Notes not previously accepted, if
any of the conditions set forth below under "-- Conditions to the Exchange
Offer" shall not have been satisfied and shall not have been waived by the
Company (if permitted to be waived by the Company) and (ii) to amend the terms
of the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the registered holders. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
the Company will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the registered holders of the Initial
Notes, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the amendment and the
manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such five to ten business day period.
If the Company determines to make a public announcement of any delay,
extension, amendment or termination of the Exchange Offer, the Company shall
have no obligation to publish, advertise or otherwise communicate any such
public announcement, other than by making a timely release to an appropriate
news agency.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at the rate of 9 1/2% per annum from
April 29, 1997, the date of issuance of the Initial Notes that are tendered in
exchange for the Exchange Notes (or the most recent interest payment date to
which interest on such Notes has been paid or duly provided for). Accordingly,
Holders of Initial Notes that are accepted for exchange will not receive
interest on the Initial Notes that is accrued but unpaid at the time of tender,
but such interest will be payable on the first interest payment date after the
Expiration Date. Interest on the Exchange Notes will be payable semi-annually on
February 1 and August 1 in each year, commencing August 1, 1997.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or to exchange, any Initial Notes for any
Exchange Notes, and may terminate or amend the Exchange Offer before the
acceptance of any Initial Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency relating to the Exchange Offer
which, in the Company's reasonable good faith judgment, would be expected
to impair the ability of the Company to proceed with the Exchange Offer; or
(b) any law, statute, rule or regulation is adopted or enacted, or any
existing law, statute, rule or regulation is interpreted by the Commission
or its staff, which in the Company's reasonable good faith judgment, would
be expected to impair the ability of the Company to proceed with the
Exchange Offer.
30
<PAGE> 36
If the Company determines in its reasonable good faith judgment that any of
the foregoing conditions exist, the Company may (i) refuse to accept any Initial
Notes and return all tendered Initial Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Initial Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders who
tendered such Initial Notes to withdraw their tendered Initial Notes which have
not been withdrawn. If such waiver constitutes a material change to the Exchange
Offer, the Company will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered holders, and the Company
will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the waiver and the manner of disclosure to
the registered holders, if the Exchange Offer would otherwise expire during such
five to ten business days.
PROCEDURES FOR TENDERING
Only a holder of record of Initial Notes may tender such Initial Notes in
connection with the Exchange Offer. To tender in connection with the Exchange
Offer, a holder must complete, sign and date the Letter of Transmittal, or a
facsimile thereof, have the signatures thereon guaranteed if required by the
Letter of Transmittal and mail or otherwise deliver such Letter of Transmittal
or such facsimile, together with the Initial Notes (unless such tender is being
effected pursuant to the procedure for book-entry transfer described below) and
any other required documents, to the Exchange Agent prior to 5:00 p.m., New York
City time, on the Expiration Date.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Initial Notes by
causing DTC to transfer such Initial Notes into the Exchange Agent's account in
accordance with DTC's procedure for such transfer. Although delivery of Initial
Notes may be effected through book-entry transfer into the Exchange Agent's
Account at DTC, the Letter of Transmittal (or facsimile thereof), with any
required signature guarantees and any other required documents, must, in any
case other than as set forth in the following paragraph, be transmitted to and
received or confirmed by the Exchange Agent at its addresses set forth under the
caption "Exchange Agent," below, prior to 5:00 p.m., New York City time, on the
Expiration Date.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system in place of sending a signed, hard copy of the Letter of
Transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Old Certificates through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the character by which the participant acknowledges its receipt of and
agrees to be bound by the Letter of Transmittal.
The tender by a holder of Initial Notes will constitute an agreement
between such holder and the Company in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
The method of delivery of Initial Notes and the Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the holders. Instead of delivery by mail, it is recommended that holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure delivery to the Exchange Agent before the Expiration Date. No
Letter of Transmittal or Initial Notes should be sent to the Company. Holders
may request their respective brokers, dealers, commercial banks, trust companies
or nominees to effect the tenders for such holders.
Any beneficial owner whose Initial Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivery of such
owner's Initial Notes, either make appropriate arrangements to register
ownership of the Initial Notes in such owner's name or obtain a properly
completed bond power from the registered holder. The transfer of registered
ownership may take considerable time.
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<PAGE> 37
Signature on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below) unless
the Initial Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Payment Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal, or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Initial Notes listed therein, such Initial Notes must
be endorsed by such registered holder or accompanied by a properly completed
bond power, in each case signed or endorsed in blank by such registered holder
as such registered holder's name appears on such Initial Notes.
If the Letter of Transmittal or any Initial Notes or bond powers are signed
or endorsed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority to so act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance and withdrawal of tendered Initial Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Initial Notes not properly tendered or any Initial Notes whose acceptance by the
Company would, in the opinion of counsel for the Company, be unlawful. The
Company also reserves the right to waive any defects, irregularities or
conditions of tender as to any particular Initial Notes either before or after
the Expiration Date. The Company's interpretation of the terms and conditions of
the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Initial Notes must be cured within
such time as the Company shall determine. Although the Company intends to
request the Exchange Agent to notify holders of defects or irregularities with
respect to tenders of Initial Notes, neither the Company, the Exchange Agent nor
any other person shall have any duty or incur any liability for failure to give
such notification. Tenders of Initial Notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any Initial
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, the Company reserves the right, as set forth above under the
caption "-- Conditions to the Exchange Offer," to terminate the Exchange Offer.
By tendering, each holder shall be deemed to represent to the Company that,
among other things, the Exchange Notes acquired in connection with the Exchange
Offer are being obtained in the ordinary course of business of the person
receiving such Exchange Notes, whether or not such person is the holder, that
neither the holder nor any such other person has an arrangement or understanding
with any person to participate in the distribution of such Exchange Notes and
that neither the holder nor any such other person is an "affiliate" (as defined
in Rule 405 under the Securities Act) of the Company. If the holder is a
broker-dealer which will receive Exchange Notes for its own account in exchange
of Initial Notes, it shall be deemed to acknowledge that it acquired such
Initial Notes as the result of market making activities or other trading
activities and that it will deliver a prospectus in connection with any resale
of such Exchange Notes. See "Plan of Distribution."
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Initial Notes and (i) whose Initial Notes
are not immediately available, or (ii) who cannot deliver their Initial Notes,
the Letter of Transmittal or any other required documents to the
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<PAGE> 38
Exchange Agent, or cannot complete the procedure for book-entry transfer, prior
to the Expiration Date, may effect a tender of their Initial Notes if:
(a) The tender is made through an Eligible Institution,
(b) Prior to the Expiration Date, the Exchange Agent received from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Initial Notes and the principal amount of Initial Notes tendered,
stating that the tender is being made thereby and guaranteeing that, within
five business days after the Expiration Date the Letter of Transmittal (or
facsimile thereof) together with the certificate(s) representing the
Initial Notes to be tendered in proper form for transfer (or confirmation
of a book-entry transfer into the Exchange Agent's account at DTC of
Initial Notes delivered electronically) and any other documents required by
the Letter of Transmittal will be deposited by the Eligible Institution
with the Exchange Agent, and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof) as well as the certificate(s) representing all tendered
Initial Notes in proper from for transfer (or confirmation of a book-entry
transfer into the Exchange Agent's account at DTC of Initial Notes
delivered electronically) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five business days
after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Initial Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Initial Notes in connection with the Exchange
Offer, a written or facsimile transmission notice of withdrawal must be received
by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New
York City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person who deposited the Initial Notes to be withdrawn
(the "Depositor"), (ii) identify the Initial Notes to be withdrawn (including
the certificate number or numbers and principal amount of such Initial Notes),
(ii) be signed by the Depositor in the same manner as the original signature on
the Letter of Transmittal by which such Initial Notes were tendered (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee (as hereinafter defined) register the transfer of
such Initial Notes into the name of the person withdrawing the tender, and (iv)
specify the name in which any such Initial Notes are to be registered, if
different from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company, whose determination shall be final and binding on all
parties. Any Initial Notes so withdrawn will be deemed not be have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the Initial Notes so withdrawn are validly
re-tendered. Any Initial Notes which have been tendered but which are not
accepted for exchange or which are withdrawn will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Initial Notes may be retendered by following one of the procedures described
above under the caption "-- Procedures for Tendering" at any time prior to the
Expiration Date.
EXCHANGE AGENT
Unites States Trust Company of New York has been appointed as Exchange
Agent in connection with the Exchange Offer. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal should be directed to the Exchange Agent, at its offices at 114
West 47th Street, New York, New York 10036-1532. The Exchange Agent's telephone
number is (212) 852-1662 and facsimile number is (212) 852-1625.
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<PAGE> 39
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
The Company will pay certain other expenses to be incurred in connection
with the Exchange Offer, including the fees and expenses of the Exchange Agent,
accounting and certain legal fees.
Holders who tender their Initial Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith. If, however, Exchange Notes
are to be delivered to, or are to be issued in the name of, any person other
than the registered holder of the Exchange Notes tendered, or if tendered
Initial Notes are registered in the name of any person other than the person
signing the Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the exchange of Initial Notes in connection with the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendered holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Issuance of the Exchange Notes in exchange for the Initial Notes pursuant
to the Exchange Offer will be made only after timely receipt by the Exchange
Agent of such Initial Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of the Initial
Notes desiring to tender such Initial Notes in exchange for Exchange Notes
should allow sufficient time to ensure timely delivery. The Company is under no
duty to give notification of defects or irregularities with respect to tenders
of Initial Notes for exchange. Initial Notes that are not tendered or that are
tendered but not accepted by the Company for exchange will, following
consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof under the Securities Act and, upon
consummation of the Exchange Offer, certain registration rights under the
Registration Rights Agreement will terminate.
In the event the Exchange Offer is consummated, the Company will not be
required to register any remaining Initial Notes except as provided in the
Registration Rights Agreement. Any remaining Initial Notes will continue to be
subject to the following restrictions on transfer: (i) such Initial Notes may be
resold only if registered pursuant to the Securities Act, if any exemption from
registration is available thereunder, or if neither such registration nor such
exemption is required by law, and (ii) such Initial Notes will bear a legend
restricting transfer in the absence of registration or an exemption therefrom.
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<PAGE> 40
BUSINESS
The Company is the largest supermarket chain and video rental operator in
Puerto Rico and the U.S. Virgin Islands. The Company believes it has developed
significant name recognition, strong customer loyalty and leading market shares
due to the superior quality and large size of its stores, the breadth and price
competitiveness of its product offerings and its extensive market coverage in
prime locations. The Company currently operates 44 supermarkets in Puerto Rico
and six supermarkets in the U.S. Virgin Islands. The Company also currently
operates 32 Blockbuster locations in Puerto Rico and two Blockbuster locations
in the U.S. Virgin Islands as the exclusive Blockbuster franchisee for Puerto
Rico and the U.S. Virgin Islands. In fiscal 1997, the Company generated revenues
of $1,020.1 million and, on a pro forma basis, EBITDA (as defined) of $50.4
million.
BUSINESS STRATEGY
The Company has developed and is implementing a strategy designed to
increase sales through both higher comparable store performance and selected new
store expansion, and to increase gross profit and operating margins through
improved operating, purchasing and merchandising practices. The components of
this strategy have been designed to build upon the following competitive
strengths of the Company:
- Leading Market Positions: The Company is the largest supermarket chain
and video rental operator in Puerto Rico and in the U.S. Virgin Islands.
The Company has a grocery retailing market share in Puerto Rico of
approximately 29%, which is larger than that of its three largest
competitors combined. The Company's grocery retailing market share in the
U.S. Virgin Islands is estimated to be approximately 50%, compared to
less than 20% for its nearest competitor. The Company's Blockbuster
operations are currently the only major video chain operations in Puerto
Rico and the U.S. Virgin Islands.
- Modern, Renovated Stores in Prime Locations: The Company's supermarkets
are among the most modern in their markets, with more than 70% of its
stores having been built or remodelled within the past five years. In
addition, as a result of its early entrance into the supermarket industry
in Puerto Rico, the Company's stores are generally located within high
traffic shopping centers in Puerto Rico's major population centers and
are frequently anchor tenants in these shopping centers. These sites are
difficult for competitors to replicate.
- Reputation for Quality, Variety and Service: The Company has built a
strong consumer franchise through the consistent introduction of
innovative marketing and services, beginning with the opening in 1955 of
United States mainland-style, large, modern supermarkets. The Company
believes that its supermarkets offer superior value by emphasizing an
extensive selection of high quality items, excellent customer service, a
large variety of specialty departments and competitive prices. The
Company believes that, compared with its competitors, it carries a wider
selection of items and a more extensive array of specialty departments,
including quality meat, deli, produce, seafood and bakery. The Company's
supermarkets also make available a large selection of complementary
services, such as Blockbuster video outlets, retail bank branches,
automatic teller machines ("ATMs") and cellular phone sale kiosks, in
many of their locations.
- Substantial Purchasing and Distribution Leverage: As the largest
supermarket operator in its markets and one of the largest cargo
importers into Puerto Rico, the Company has substantial purchasing
advantages over its competitors. The Company also owns and operates a
300,000 sq. ft. full-service warehouse and distribution facility, with
both refrigerated and freezer capacity, which is the only such facility
in Puerto Rico. The Company's large warehouse allows it to leverage its
purchasing power for volume discounts and to ensure efficient and
consistent inventory stocking throughout its store locations.
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<PAGE> 41
The components of the Company's business strategy, designed to build upon
the Company's competitive strengths, consist of the following:
Increase Sales
- Increase Store Traffic by Creating Destination Centers: The Company
seeks to increase store traffic by creating destination centers through
the expansion of the variety of brand-name retail outlets available
within many of the Company's supermarkets. The Company currently has 11
in-store Blockbuster outlets, leases in-store space to several retail
consumer banks for full service banking and ATMs and to cellular phone
service providers, and has initiated a program to lease out space for in-
store Burger King restaurants, the first of which opened in June 1997.
The Company believes that its supermarkets in Puerto Rico, which average
approximately 40,295 gross sq. ft., are better suited for such multi-use
formats than the generally smaller grocery stores with which the Company
competes. In addition, the Company is reviewing opportunities to
cross-market other consumer products and services in its stores.
- Enhance the Company's Price/Value Image: Based on recent market surveys,
the Company believes that its pricing is generally comparable to or lower
than its major competitors and that opportunities exist to improve
customers' perceptions of the Company's price competitiveness. In fiscal
1997, the Company implemented a strategy of increased advertising in
Puerto Rico which emphasized its price competitiveness, particularly for
high volume products which influence consumers' perception of its value
image. The Company believes this contributed to the fourth quarter fiscal
1997 increase in same store sales in Puerto Rico compared to the prior
year and intends to continue to purchase a greater share of local
television, radio and print advertising than its competitors in order to
promote this image. The use of the Xtra store format also has been
successful in influencing customers' "everyday low price" perceptions of
the Company. The Company converted five Pueblo stores to the Xtra format
in fiscal 1997 and intends primarily to use this format to promote its
value image when it expands into new markets.
- Expand Blockbuster Video Operations: The Company has been significantly
expanding its Blockbuster operations by converting its existing Pueblo
Video Clubs to Blockbuster outlets. In-store Blockbuster video outlets
generate significantly greater revenues and profitability than Pueblo
Video Club operations and have a positive impact on grocery store
traffic. Eleven such conversions have been completed since October 1996
and nine more are planned by the end of fiscal 1998. Since the
conversions are located in existing grocery stores, capital expenditures
and operating costs are significantly lower compared to new free standing
Blockbuster stores. In addition, the Company intends to open three
free-standing Blockbuster stores in fiscal 1998 and to examine further
opportunities to expand the number of free-standing Blockbuster stores it
operates.
- Targeted Supermarket Expansion: The Company intends selectively to
develop new supermarkets in attractive targeted markets, particularly in
the interior of Puerto Rico. Management believes these locations provide
a less competitive environment with lower initial capital requirements
and potentially higher profit margins.
Increase Gross Profit and Operating Margins
- Increase Store Level Productivity and Reduce Labor Costs: The Company
has implemented numerous measures to enhance productivity and reduce
labor costs. For example, the Company has changed work scheduling
practices in order better to match staffing levels to customer shopping
patterns. In addition, the Company has formed management teams which are
in the process of training store employees and management to implement
new store operating procedures which are designed to create more
efficient work schedules and to reduce store-room inventories, spoilage
and the handling of products. Such changes enabled the Company to
eliminate 440 store employees in January 1997, reducing annual labor
costs by approximately $9.0 million. The Company also expects to generate
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<PAGE> 42
additional labor-related cost savings over time by increasing the
percentage of work performed by part-time employees.
- Capitalize on Procurement and Distribution Capabilities: As the largest
buyer of grocery items in Puerto Rico and one of the largest cargo
importers into Puerto Rico, the Company believes it has many
opportunities to improve gross margins through improved buying and
transportation practices. The Company currently buys approximately 45% of
its total dollar volume of product purchases directly from manufacturers
and is seeking to increase this percentage to reduce costs and to obtain
superior payment terms. Moreover, the Company is renegotiating existing
direct buying arrangements with certain manufacturers for the same
purpose and will also seek to increase utilization of its excess
warehouse capacity to take advantage of bulk purchase discounts.
- Initiate Category Management System; Expand Private Label: The Company
is implementing a category management system designed to combine
traditional buying, reordering and pricing functions under the leadership
of corporate level category merchandisers. The Company believes that such
a system will improve sales, optimize inventory levels, reduce purchase
costs and thereby enhance gross profit and operating profit margins. In
addition, the Company intends to continue to expand its sales of
profitable Food Club private label products to price conscious consumers
through its arrangement with Topco. The Company also intends to develop
its own private label products aimed at price points below the Topco
products.
- Enhance Management and Implement Management Incentive Programs: The
Company intends to maintain an on-going program to recruit senior
managers trained in United States mainland supermarket retailing
practices for strategic positions throughout its operations.
Additionally, the Company has established performance-based compensation
programs to align employees' interests with the implementation of the
Company's revised business strategy.
OPERATIONS
Supermarket Industry Overview
The top three chains in the retail grocery industry in Puerto Rico account
for approximately one-half of total industry sales, with the remainder divided
among smaller chains and numerous independent operations. Total supermarket
chain sales in calendar year 1996 were approximately $3.1 billion, a significant
portion of which was attributable to the more densely populated greater San Juan
metropolitan area, where the larger chains are concentrated. The grocery
industry in less populated parts of the island is characterized by smaller
family-run operations with limited selection and less competitive prices. No
major U.S. supermarket chains have established operations in the Puerto Rico
grocery market, although a number of national general merchandise chains have
significant Puerto Rican operations. National warehouse clubs and mass
merchandisers, which have entered the Puerto Rico and U.S. Virgin Islands
markets since 1990 offering various bulk grocery and general merchandise items,
have increased pricing pressures on grocery retailers including the Company.
Puerto Rico
The Company operates two complementary supermarket formats: conventional
Pueblo supermarkets which emphasize service, variety and high quality products
at competitive prices, and Xtra supermarkets which are typically larger stores
emphasizing everyday low prices. In Puerto Rico, the Company currently operates
14 Pueblo stores and 30 Xtra stores and has a grocery retailing market share of
approximately 29%. In addition, the Company estimates that it has a 34% market
share in the greater San Juan metropolitan area, the most densely populated
region of Puerto Rico, with more than onethird of the island's 3.7 million
residents. In fiscal 1997 in Puerto Rico, Pueblo stores averaged approximately
28,286 gross sq. ft. and generated an average of approximately $828 of sales per
selling sq. ft., while Xtra stores averaged approximately 45,900 gross sq. ft.
and generated an average of approximately $681 of sales per selling sq. ft.
Since the Acquisition, the Company has constructed five new Xtra stores,
remodelled ten existing supermarkets and converted five Pueblo stores into Xtra
stores in Puerto Rico.
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U.S. Virgin Islands
In fiscal 1997, the six Pueblo stores in the U.S. Virgin Islands averaged
32,500 gross sq. ft. and generated an average of approximately $752 sales per
selling sq. ft. The Company has an estimated U.S. Virgin Islands grocery
retailing market share of approximately 50%. Since the Acquisition, the Company
has added one new supermarket and remodeled five existing supermarkets in the
U.S. Virgin Islands.
Video Operations
The Company has been the exclusive franchisee of Blockbuster locations in
Puerto Rico since 1989 and in the U.S. Virgin Islands since 1993 and currently
operates 34 Blockbuster locations in Puerto Rico and the U.S. Virgin Islands. In
Puerto Rico, the Company operates 10 in-store Blockbuster outlets and 22 free
standing Blockbuster stores, the majority of which are adjacent to its
supermarkets. In the U.S. Virgin Islands, the Company operates one in-store
Blockbuster outlet and one free standing Blockbuster store. The Company's free
standing Blockbuster stores average approximately 6,000 gross sq. ft., while the
Company's in-store Blockbuster outlets average approximately 4,200 gross sq. ft.
In addition, the Company currently operates nine video outlets in its
supermarkets under the name Pueblo Video Clubs, all of which it intends to
convert into in-store Blockbuster outlets. In order to increase customer traffic
in its supermarkets, the Company's typical in-store Blockbuster outlet has a
separate entrance but its principal exit leads into the supermarket. In
addition, the Company is able to take advantage of cross-marketing opportunities
with its supermarket operations, including promotional video rental and
merchandising offers.
The Company's Blockbuster operations are currently the only major video
chain operating in Puerto Rico and the U.S. Virgin Islands. Each location
carries an average of approximately 10,000 tapes dedicated to video rental. Each
location also offers for sale a selection of recorded and blank video tapes,
accessories and snack food products. Since each Blockbuster location is
typically larger than its competitors, it provides greater depth and breadth in
selections. For promotions of its Blockbuster operations, the Company primarily
utilizes print, radio, billboards and in-store signage, and also benefits from
Blockbuster's television advertising. BEC also provides extensive product and
support services to the Company. These include, among other things, site
selection review, packaging of the initial rental inventory and providing
computer hardware and software.
The Company's successful development of the Blockbuster franchise has been
the result of its ability to leverage its knowledge of Puerto Rico and existing
market and retailing expertise. The Company's knowledge of real estate and its
existing portfolio of desirable supermarket locations has enabled its
Blockbuster division to obtain attractive, high traffic locations. The Company
will continue to evaluate expansion opportunities on the U.S. Virgin Islands.
The Company's Development Agreements with BEC provide for the Company's
exclusive right to open Blockbuster locations in Puerto Rico and the U.S. Virgin
Islands during the term of such agreements. The Development Agreements require
the Company to open a certain number of Blockbuster locations in Puerto Rico by
December 1999 and in the U.S. Virgin Islands by April 1997. In 1996, the Company
amended its Development Agreements to allow the necessary flexibility to develop
smaller store formats. Each Blockbuster location is subject to a Franchise
Agreement with BEC that provides the right for such location to conduct
Blockbuster operations for a 20 year period so long as the terms of such
Franchise Agreement are complied with. The Company has fulfilled its development
quota in each of the U.S. Virgin Islands and Puerto Rico and otherwise believes
it is in full compliance with its obligations under the Development Agreements.
The Company is currently in discussions with BEC to establish new development
quotas. See "Risk Factors -- Risks to Blockbuster Development Strategy".
STORE COMPOSITION
The Company currently has store locations in 23 of the 39 markets in Puerto
Rico with populations of over 30,000 people. The Company believes there are
targeted new store expansion opportunities in Puerto Rico, particularly in
markets outside greater San Juan.
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Since the Acquisition, the Company has made capital expenditures of
approximately $56.2 million in its supermarket operations in Puerto Rico and the
U.S. Virgin Islands, including the opening of five new Xtra stores, the addition
of one new Pueblo store, the remodelling of 15 existing stores and the
conversion of five Pueblo stores into Xtra stores. In the same period, the
Company has made capital expenditures totalling approximately $5.2 million in
its Blockbuster operations. The history of store openings, closings and
remodellings, beginning with fiscal 1993, is set forth in the table below:
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Stores in Operation:
At beginning of year............................ 65 74 76 79 82
Stores opened:
Supermarkets................................. 2 4 2 4 --
Blockbuster video stores..................... 8 3 1 -- 5
Stores closed:
Puerto Rico.................................. 1 2 -- 1 2
Florida...................................... -- 3 -- -- 8
At end of year.................................. 74 76 79 82 77
== == == == ==
Remodels and/or conversions..................... 8 8 6 1 9
Store Composition at Year-End:
Xtra superstores............................. 29 29 31 34 30
Pueblo supermarkets.......................... 26 26 26 26 20
Blockbuster video stores(1).................. 19 21 22 22 27
By location:
Puerto Rico.................................. 59 62 65 67 70
Florida...................................... 10 8 8 8 --
U.S. Virgin Islands.......................... 5 6 6 7 7
</TABLE>
- ---------------
(1) Subsequent to fiscal 1997, the Company opened seven additional locations and
currently operates a total of 34 Blockbuster locations.
SUPERMARKET PURCHASING AND DISTRIBUTION
The Company's buying staff actively purchase products from distributors, as
well as directly from the producer or manufacturer. The Company generally
controls shipping from the point of purchase in an effort to reduce costs and
control delivery times. The Company currently buys approximately 45% of its
total dollar volume of product purchases directly from manufacturers and is
seeking to increase this percentage to reduce costs and to obtain superior
payment terms. Moreover, the Company is renegotiating existing direct buying
arrangements with certain manufacturers for the same purpose and will also seek
to increase utilization of its excess warehouse capacity to take advantage of
bulk purchase discounts.
The Company owns a 300,000 square foot full-line warehouse and distribution
center in greater San Juan. The only facility of its type on the island with
both refrigerated and freezer capacity, the San Juan warehouse has capacity to
store approximately 1.5 million cases of assorted products, and acts as the
Company's central distribution center for the island. The warehouse is equipped
with a computerized tracking system which is fully integrated with the Company's
purchasing, inventory management and shipping systems. This system enables the
Company to make rapid procurement decisions, optimize inventory levels and
increase labor productivity. In fiscal 1997, this facility provided
approximately 59% of the goods (measured by purchase cost) supplied to the
Company's stores in Puerto Rico.
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<PAGE> 45
SUPERMARKET MERCHANDISING
General
The Company's merchandising strategies, which are differentiated by
division and store type, integrate one-stop shopping convenience, premium
quality products, attractive pricing and effective advertising and promotions.
At Pueblo supermarkets in Puerto Rico and the U.S. Virgin Islands, the Company's
merchandising strategy focuses on offering premium quality products with
attractive pricing, excellent selection, superior customer service and special
buying opportunities. The Company's Xtra superstores combine the merchandising
features of Pueblo supermarkets with everyday low prices. The Company reinforces
its merchandising strategies with friendly and efficient service, effective
promotional programs, in-store activities, and both brand name and high quality
private label product offerings.
Product Offerings
With approximately 23,000 stock keeping units ("SKU"), management believes
the Company's Pueblo and Xtra stores offer the greatest product variety within
their market areas, as its competitors generally lack the sales volume, store
size and procurement efficiencies to stock and merchandise the wide variety of
products and services offered by the Company. The Company believes that the
convenience and quality of its specialty department products contribute to
customer satisfaction.
The following table sets forth the mix of products sold in the Company's
supermarkets for the fiscal years indicated:
PERCENTAGE OF NET SALES BY PRODUCT CATEGORY -- TOTAL SUPERMARKET
OPERATIONS (EXCLUDING FLORIDA OPERATIONS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
JANUARY 28, JANUARY 27, JANUARY 25,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
PRODUCT CATEGORY
------------------
Grocery........................................... 46.2% 46.5% 46.9%
Health/Beauty Care/General Merchandise............ 5.8 6.3 6.2
Dairy............................................. 15.9 16.1 16.4
Meat/Seafood...................................... 17.2 16.4 16.0
Produce........................................... 9.8 9.4 9.3
Deli/Bakery....................................... 4.4 4.6 4.5
Video Club........................................ 0.7 0.7 0.7
----- ----- -----
Total................................... 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Pricing
As the largest grocery operator in its markets, the Company is able to take
advantage of volume purchase discounts and shipping efficiencies in order to
offer competitive pricing at its Pueblo supermarkets, as well as everyday low
pricing at its Xtra superstores. Pueblo and Xtra supermarkets utilize weekly
circulars to emphasize special offers. The Company's "Family Pack" program
offers bulk sizes of high volume products typically priced equal to or lower
than prices offered by warehouse club stores.
Private Label
An important element of Pueblo's reputation for high-quality and excellent
value, and Xtra's reputation for everyday low prices, is the utilization of Food
Club private label products through the Company's membership with Topco. Topco's
private label program offers its members over 4,000 food and non-food items.
Topco products are sold under the Food Club, World Classic, Top Frost, Top
Crest, Top Care, Top
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<PAGE> 46
Fresh and Mega labels in the grocery, frozen food, dairy, fresh meat, poultry
and health and beauty care departments. The high quality and attractive pricing
of the Food Club program have made it widely accepted by the Company's customers
as an alternative to national brands. Management estimates that approximately
17% of the Company's fiscal 1997 grocery item sales were of Topco products.
Topco's private label program allows the Company to pass on substantial savings
to customers, while maintaining a reputation for superior quality. The low cost
of Topco products enables the Company to earn above average margins compared to
national brands despite the lower prices offered to customers. The Company
intends to continue to expand its sales of profitable Food Club private label
products to price-conscious consumers through its arrangement with Topco. The
Company also intends to develop its own private label products aimed at price
points below the Topco products.
Category Management
The Company is currently in the process of implementing a category
management system designed to combine traditional buying, reordering and pricing
functions under the leadership of corporate level category merchandisers. The
system will also allow the Company to assign direct profit management to the
individuals responsible for a product category. The Company believes that such a
system will improve sales, optimize inventory levels, reduce purchase costs and
thereby enhance gross profit and operating profit margins. The Company
anticipates completion of the program's implementation in fiscal 1998.
Advertising and Promotion
The Company primarily utilizes newspaper, radio, television and in-store
advertising in both Puerto Rico and the U.S. Virgin Islands. The Company's
grocery operations run multi-page newspaper inserts and page full-color
shoppers. The Company advertises on television primarily through trailers on
vendor sponsored advertisements. In fiscal 1997, the Company launched a major
advertising campaign. This campaign presents both the Pueblo and Xtra format in
a single advertisement promoting special offers at both store formats. This
market strategy stresses the different store formats yet serves to reduce
advertising costs.
All advertising is created and designed through the Company's wholly-owned
advertising agency, CaribAd (Adteam) ("Adteam"). Adteam, based in Puerto Rico,
develops promotional programs for all of the Company's markets, thereby
providing it with cost advantages over its competitors. In addition, Adteam has
other clients in Puerto Rico, generating incremental income for the Company.
COMPETITION
The grocery retailing business is highly competitive. Competition is based
primarily on price, quality of goods and service, convenience and product mix.
The number and type of competitors and the degree of competition experienced by
individual stores, vary by location.
The Company competes with local food chains such as Supermercados Amigo,
Grande Supermarkets, and Plaza Extra, as well as numerous independent operations
throughout Puerto Rico and the U.S. Virgin Islands. In addition, several
warehouse clubs and mass merchants, such as Sam's Warehouse clubs, Wal-Mart,
Kmart and Walgreens, have opened locations in Puerto Rico and the U.S. Virgin
Islands. Despite these competitive challenges, the Company continues to maintain
its position as market share leader in each of its respective markets. See "Risk
Factors -- Competition."
Although the Company's Blockbuster operations constitute the only major
video chain in Puerto Rico and the U.S. Virgin Islands, they compete with
numerous local, independent video retailers. In addition, the Company's
Blockbuster video stores compete against television, cable, satellite
broadcasting, movie theaters and other forms of entertainment.
MANAGEMENT INFORMATION SYSTEMS
The Company believes that high levels of automation and technology are
essential to its operations and has invested considerable resources in computer
hardware, systems applications and networking capabilities.
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<PAGE> 47
These systems integrate all major aspects of the Company's business, including
the monitoring of store sales, inventory control, merchandise planning, labor
utilization, distribution and financial reporting.
All of the Company's stores are equipped with state-of-the-art point of
sale terminals with full price look-up capabilities that capture sales at the
time of transaction down to the SKU level through the use of bar-code scanners.
These scanners facilitate customer check-out and provide valuable
stock-replenishment information for buyers and realtime financial information
used by management to provide greater control on a line-item basis in
determining true store-by-store costs. To provide the best service possible, the
Company has begun to install a labor scheduling system that schedules the
optimal staffing based on sales, customer traffic and defined service
objectives. The Company's management information systems at its Blockbuster
operations are state-of-the-art systems which are licensed to the Company by
BEC. The conversion of the Company's financial systems to handle the year 2000
is expected to be completed by the end of July 1997. Other system conversions
are expected to be completed by the end of 1998 for year 2000 compatibility.
EMPLOYEES
As of January 25, 1997, the Company had approximately 8,000 employees
(full- and part-time) of whom approximately 6,700 were employed at the
supermarket level, 600 at the corporate offices and distribution center and 700
by the Blockbuster division. Approximately 65% of the Company's supermarket
employees are employed on a part-time basis. Approximately 5,600 store employees
are represented by a non-affiliated collective bargaining organization under a
contract expiring in 1999. The Company considers its relations with its
employees to be good.
As part of the Company's effort to reduce labor costs, the Company has
changed labor scheduling practices, reduced the handling of products and
improved stock room operations. This enabled the Company to eliminate 440 store
employees in its Puerto Rico supermarkets in January 1997, reducing annual labor
costs by approximately $9.0 million.
PROPERTIES
The following table sets forth information as of January 25, 1997 with
respect to the owned and leased stores and support facilities used by the
Company in its business:
<TABLE>
<CAPTION>
OWNED(1) LEASED TOTAL
--------------------- --------------------- ---------------------
NO. GROSS SQ. FT. NO. GROSS SQ. FT. NO. GROSS SQ. FT.
--- ------------- --- ------------- --- -------------
<S> <C> <C> <C> <C> <C> <C>
Pueblo supermarkets:
Puerto Rico...................... 2 91,000 12 305,000 14 396,000
U.S. Virgin Islands.............. 3 112,000 3 83,000 6 195,000
Xtra superstores:
Puerto Rico...................... 7 359,000 23 1,018,000 30 1,377,000
Blockbuster video stores........... 5 31,000 22 120,000 27 151,000
Warehouse and distribution
facilities....................... 1 300,000 1 13,000 2 313,000
--- ------------- --- ------------- --- -------------
</TABLE>
- ---------------
(1) Four of the owned stores include land leases: three Xtra stores in Puerto
Rico and one Pueblo store in the Virgin Islands.
The Company also owns the shopping centers at three of its store locations
in Puerto Rico.
The majority of the Company's supermarket operations are conducted on
leased premises which have initial terms generally ranging from 20 to 25 years.
The lease terms typically contain renewal options allowing the Company to extend
the lease term in five to ten year increments. The leases provide for fixed
monthly rental payments subject to various periodic adjustments. The leases
often require the Company to pay certain expenses related to the premises such
as insurance, taxes and maintenance.
The construction of owned facilities has been financed principally with
internally generated funds. All owned properties of the Company are pledged as
collateral under the New Bank Credit Agreement.
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<PAGE> 48
The Company owns its corporate offices located in San Juan, Puerto Rico,
and leases its administrative offices located in Pompano Beach, Florida.
The Company has discontinued its operations in Florida and is seeking to
dispose of its remaining Florida retailing assets. Concurrent with the Offering,
the Company satisfied $10.0 million of indebtedness payable to a related party
by transferring its interest in two real estate properties from its discontinued
Florida operations to the related party.
TRADEMARKS, TRADENAMES AND SERVICE MARKS
The Company owns certain trademarks, tradenames and service marks used in
its business. The Company believes that its trademarks, tradenames, and service
marks, including Pueblo and Xtra, are valuable assets due to the fact that brand
name recognition and logos are important considerations in the Company's
consumers' markets. As a franchisee, the Company has exclusive rights to use the
Blockbuster trademark in its specified franchise territories.
LEGAL PROCEEDINGS
The Company is a party to various lawsuits arising in the ordinary course
of business, none of which is believed to be material with respect to the
business, assets and continuing operations of the Company. Pueblo has been party
to various lawsuits alleging a fraud engaged in by Premium Sales Corp., Plaza
Trading Corporation and Windsor Wholesale Company and numerous of their related
subsidiaries ("Premium") in which damages totalling approximately $300 million
(plus treble damages, punitive damages and/or attorneys' fees) were claimed
against each defendant. Premium was ostensibly engaged in the business of
"brokering" or "diverting" groceries throughout the United States and various
foreign countries from 1988 until its official bankruptcy in 1993. Following the
Premium bankruptcy, the Receiver and Bankruptcy Trustee sued numerous grocers,
including Pueblo, claiming that the grocers were liable for Premium's losses,
and a class action was filed against Pueblo and other defendants on behalf of
the investors in the funding entities which lost monies in the Premium fraud.
All litigation against Pueblo has been settled for an amount which, taking into
account all litigation costs and settlement costs, is within the $5.3 million of
reserves established from fiscal years 1994 through 1997 for such purpose. The
settlement received final court approval on June 9, 1997.
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<PAGE> 49
MANAGEMENT
DIRECTORS AND CORPORATE OFFICERS OF THE COMPANY
Set forth below are the names of the directors and corporate officers of
the Company, their respective ages and their respective positions with the
Company as of July 1, 1997. The terms of the directors and corporate officers of
the Company expire annually, upon the holding of the annual meetings of
stockholders.
<TABLE>
<CAPTION>
NAME AGE POSITION
-------------------------------------- --- --------------------------------------
<S> <C> <C>
Gustavo A. Cisneros................... 51 Chairman of the Board
William T. Keon, III.................. 50 Director; President and Chief
Executive Officer
David L. Aston........................ 50 Director; Executive Vice President;
President, Puerto Rico Division
Steven I. Bandel...................... 44 Director
Cristina Pieretti..................... 45 Director
Alejandro Rivera...................... 54 Director
Daniel J. O'Leary..................... 50 Executive Vice President and Chief
Financial Officer
Lawrence Elias........................ 54 Senior Vice President, Management
Information Systems
Filiberto Berrios..................... 51 Senior Vice President; President,
Blockbuster Division
Thomas F. Johnson..................... 47 Vice President; President, U.S. Virgin
Islands Division
Alicia Echevarria..................... 45 Assistant Secretary; Vice President,
Human Resources, Puerto Rico Division
Dan Cammarata......................... 36 Controller; Chief Accounting Officer;
Assistant Secretary
</TABLE>
Gustavo A. Cisneros has been the Chairman of the Board of the Company since
its inception (July 28, 1993). He was appointed to the Executive Committee in
October 1995. Since prior to 1992, he has been a direct or indirect beneficial
owner of interests in and a director of certain companies that own or are
engaged in a number of diverse commercial enterprises in Venezuela, the United
States, Brazil, Chile and Mexico (the "Cisneros Group") including the Company.
Enterprises included in the Cisneros Group may be deemed to be affiliates of the
Company. He is a member of the board of directors of Univision Communications,
Inc., Evenflo & Spalding Holdings Corporation and RSL Communications, Inc.
William T. Keon, III has been a Director of the Company since October 1995.
He assumed the position of President and Chief Executive Officer and was
appointed Chairman of the Executive Committee and Audit and Risk Committee also
in October 1995. He is also a member of the Compensation and Benefits Committee.
Since January 1983 Mr. Keon has served in senior managerial roles in the
Cisneros Group.
David L. Aston joined the Company in March 1997 as a Director, Executive
Vice President and President of the Puerto Rico Division. From June 1993 until
the time he joined the Company, Mr. Aston served as president of Waldbaums and
Superfresh Foods, units of the A&P Company, a supermarket chain in the New York
area. Prior to June 1993, he served as Vice President of Merchandising and
Operations for the Kroger Company.
Steven I. Bandel has been a Director of the Company since the Acquisition.
He was appointed to the Executive Committee during October 1995. Since prior to
1992, he has been actively involved in the operations and management of certain
companies in the Cisneros Group, other than a period from February 1990 to May
1992 during which he acted as a partner in a Venezuelan investment banking firm.
Cristina Pieretti was appointed a Director in March 1997. During most of
the last seven years she has been actively involved in operations of companies
in the Cisneros Group in areas related to consumer goods,
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<PAGE> 50
retailing and telecommunications, other than a period from March 1995 to
February 1996 during which she acted as a partner in a consulting firm.
Alejandro Rivera has been a Director of the Company since April 1, 1997. He
was previously a Director of the Company since the Acquisition until June 30,
1995. Since 1976, he has been actively involved in the operations and management
of certain companies in the Cisneros Group. Mr. Rivera is also an Alternate
Director of Univision Communications, Inc. Mr. Rivera is a member of the Audit
and Risk Committee and of the Compensation and Benefits Committee.
Daniel J. O'Leary joined the Company in June 1997 as Executive Vice
President and Chief Financial Officer. From December 1992 until the time he
joined the Company, Mr. O'Leary served as Senior Vice President of Finance and
Chief Financial Officer of Phar-Mor, Inc., a deep discount drugstore chain.
Prior to that time, he served as a Director and, at various times, President and
Chief Operating Officer, Executive Vice President, Vice President of Finance and
Chief Financial Officer at Fay's, Inc., a multi-concept retailer with drugstores
and auto parts stores. From 1969 to 1987, Mr. O'Leary was a member of the
accounting firm of Touche, Ross & Co. (now known as Deloitte & Touche LLP).
Lawrence Elias has served as Senior Vice President of Management
Information Systems of the Company since September 1993. He joined the Company
in March 1988 as Vice President of Management Information Systems and was
promoted to Senior Vice President in September 1993.
Filberto Berrios has held a variety of positions with the Company since
1965, most recently as Vice President and General Manager of the Blockbuster
Division. In March 1997, he was promoted to Senior Vice President and President
of the Blockbuster Division.
Thomas F. Johnson joined the Company's Florida division in 1991. In 1994,
Mr. Johnson became General Manager of the U.S. Virgin Islands Division. In March
1997, Mr. Johnson became Vice President and President of the U.S. Virgin Islands
Division. Prior to joining the Company, Mr. Johnson had 24 years of industry
experience, most of it with Safeway Inc.
Alicia Echevarria joined the Company in April 1996 as Vice President of
Human Resources for the Puerto Rico Division. In March 1997 she became Assistant
Secretary to the Company. Prior to joining the Company, she was Director of
Human Resources for R.J. Reynolds Tobacco Company (Inc) in Puerto Rico, where
she was employed for 15 years.
Dan Cammarata joined the Company in December 1989 and became Controller in
October 1996. In March 1997, he became Chief Accounting Officer and Assistant
Secretary of the Company. Prior to joining the Company, Mr. Cammarata spent
seven years in public accounting.
PRINCIPAL SHAREHOLDERS
The Company is a wholly-owned subsidiary of Holdings. Holdings is
beneficially owned by a trust for the benefit of the family of Gustavo Cisneros,
and a trust for the benefit of the family of Ricardo Cisneros (the "Principal
Shareholders"), with each trust having an approximate 50% indirect beneficial
interest in Holdings. Messrs. Gustavo and Ricardo Cisneros disclaim beneficial
ownership of such shares.
DESCRIPTION OF NOTES
The Exchange Notes will be issued, and the Initial Notes were issued, under
an indenture dated as of April 29, 1997 (the "Indenture") between the Company,
as issuer, and United States Trust Company of New York, trustee (in such
capacity, the "Trustee"). For purposes of the following summary, the Initial
Notes and the Exchange Notes are collectively referred to as the "Notes." The
following summary of the material provisions of the Indenture does not purport
to be complete and is subject to, and qualified in its entirety by, reference to
the provisions of the Indenture, including the definitions of certain terms
contained therein and those terms made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended. For
45
<PAGE> 51
definitions of certain capitalized terms used in the following summary, see
"Certain Definitions" below. A copy of the Indenture is filed as an exhibit to
the Registration Statement of which this Prospectus is a part.
GENERAL
The Notes will mature on August 1, 2003, will be limited to $85,000,000
aggregate principal amount and will be senior unsecured obligations of the
Company. Except as otherwise described below, each Note will bear interest at
the rate of 9 1/2% per annum from April 29, 1997 or from the most recent
interest payment date to which interest has been paid or duly provided for,
payable semiannually on February 1 and August 1 in each year, commencing August
1, 1997, until the principal thereof is paid or duly provided for, to the person
in whose name the Note (or any predecessor Note) is registered at the close of
business on the January 15 or July 15 next preceding such interest payment date.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
The principal of and premium, if any, and interest on the Notes will be
payable, and the Notes will be exchangeable and transferable, at the office or
agency of the Company in The City of New York maintained for such purposes
(which initially will be the office of the Trustee located at 114 West 47th
Street, New York, New York 10036-1532) or, at the option of the Company,
interest may be paid by check mailed to the address of the person entitled
thereto as such address appears in the security register. The Notes will be
issued only in registered form without coupons and only in denominations of
$1,000 and any integral multiple thereof. No service charge will be made for any
registration of transfer or exchange or redemption of Notes, but the Company may
require payment in certain circumstances of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection therewith.
The Notes will not be entitled to the benefit of any sinking fund.
The Company currently has outstanding $180.0 million aggregate principal
amount of Existing Notes issued pursuant to an Indenture dated as of July 28,
1993, the terms of which are substantially identical to the Notes and Indenture,
respectively.
RANKING
The Notes will be senior unsecured obligations of the Company and will rank
in right of payment equally with all other existing and future senior
obligations of the Company. Because the Company is a holding company that
conducts all of its business through subsidiaries, all existing and future
liabilities of its subsidiaries (including, without limitation, Pueblo's
obligations under the New Bank Credit Agreement) will be effectively senior to
the Notes. As of January 25, 1997, on a pro forma basis after giving effect to
the Refinancing Plan, the Company would have had approximately $206.2 million of
indebtedness outstanding (excluding capital leases) other than the Notes, of
which $180.0 million would have been the Existing Notes and $26.2 million would
have been senior secured indebtedness, comprising Guarantees of the total
outstanding indebtedness of the Company's Subsidiaries. Subject to certain
limitations, the Company and its Subsidiaries may incur additional Indebtedness
in the future.
REDEMPTION
Optional Redemption. The Notes will be redeemable, at the option of the
Company, as a whole or from time to time in part, at any time on or after August
1, 1998, on not less than 30 nor more than 60 days' prior notice at the
redemption prices (expressed as percentages of principal amount) set forth
below, together with accrued interest, if any, to the redemption date, if
redeemed during the 12-month period beginning on
46
<PAGE> 52
August 1 of the years indicated below (subject to the right of holders of record
on the relevant record date to receive interest due on an interest payment
date):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
------------------------------------------------------------------ ----------
<S> <C>
1998.............................................................. 104.750%
1999.............................................................. 102.375%
</TABLE>
and thereafter at 100% of the principal amount, together with accrued interest,
if any, to the redemption date.
If less than all the Notes are to be redeemed, the particular Notes to be
redeemed will be selected by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not listed on a national securities exchange, on a
pro rata basis, by lot or by such other method as the Trustee deems fair and
appropriate.
Purchase of Notes upon Change of Control or Asset Sale. Each Holder of the
Notes will have certain rights to require the Company to purchase such Holder's
Notes upon the occurrence of a Change of Control. See "Certain
Covenants -- Purchase of Notes upon Change of Control" below. Under certain
circumstances, the Company will be required to make an offer to purchase all or
a portion of the Notes with proceeds received from an Asset Sale. See "Certain
Covenants -- Limitation on Asset Sales" below.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness
(a) So long as any of the Notes are outstanding, the Company shall not, and
shall not permit any Restricted Subsidiary to, Incur any Indebtedness except (i)
Indebtedness of the Company if, after giving effect to the Incurrence of such
Indebtedness and the receipt and application of the proceeds therefrom, the
Consolidated Fixed Charge Ratio of the Company would be greater than 2.25:1;
(ii) Indebtedness under the Old Bank Credit Agreement in an aggregate principal
amount not to exceed (x) $175 million less (y) the amount of any reduction in
the commitments thereunder pursuant to clause (B) in the second paragraph of the
"Limitation on Asset Sales" covenant described below; (iii) Indebtedness
existing on July 28, 1993; (iv) Indebtedness issued in exchange for, or the net
proceeds of which are used to exchange, refinance or refund, outstanding
Indebtedness of the Company or any of its Restricted Subsidiaries, in an amount
(or, if such new Indebtedness provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of acceleration thereof,
with an original issue price) not to exceed the amount so exchanged, refinanced
or refunded (plus premiums, accrued interest, fees and expenses); provided that
(A) the Indebtedness issued does not mature prior to the Stated Maturity of, and
does not have an Average Life shorter than, the Average Life of the Indebtedness
being so exchanged, refinanced or refunded and (B) in case the Indebtedness to
be exchanged, refinanced or refunded is expressly subordinated in right of
payment to the Notes, (1) such Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such Indebtedness is issued, is
expressly made subordinate in right of payment to the Notes at least to the
extent that the Indebtedness to be exchanged, refinanced or refunded is
subordinated in right of payment to the Notes, (2) such Indebtedness, determined
as of the date of its Incurrence, does not mature prior to one year after the
Stated Maturity of the Notes and (3) the Average Life of such Indebtedness,
determined as of the date of its Incurrence, is at least one year longer than
the remaining Average Life of the Notes; (v) Indebtedness of the Company to any
Restricted Subsidiary that is a Wholly Owned Subsidiary of the Company, or of a
Restricted Subsidiary to the Company or to any other Restricted Subsidiary that
is a Wholly Owned Subsidiary of the Company; (vi) Acquired Indebtedness;
provided that, at the time of the Incurrence thereof, the Company could Incur at
least $1.00 of Indebtedness under clause (i) of this "Limitation on
Indebtedness" covenant; and refinancings thereof; provided further that any
refinancing Indebtedness may not be Incurred by any Person other than the
Company or the Restricted Subsidiary that is the obligor on such Acquired
Indebtedness; (vii) Indebtedness in respect of performance bonds, bankers'
acceptances and surety or appeal bonds provided in the ordinary course of
business; (viii) Indebtedness under Currency Agreements
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<PAGE> 53
and Interest Rate Agreements; provided that, in the case of Currency Agreements
that relate to other Indebtedness, such Currency Agreements do not increase the
Indebtedness of the Company or any Subsidiary outstanding at any time other than
as a result of fluctuations in foreign currency exchange rates or by reason of
fees, indemnities and compensation payable thereunder; (ix) Indebtedness arising
from Guarantees or letters of credit, surety bonds or performance bonds securing
any obligations of the Company or any Subsidiary pursuant to agreements
providing for indemnification, adjustment of purchase price or similar
obligations Incurred in connection with the disposition of any business, assets
or Subsidiary of the Company in a principal amount not to exceed the gross
proceeds actually received by the Company or any Subsidiary in connection with
such disposition (but excluding Guarantees of Indebtedness Incurred by any
Person acquiring all or any portion of such business, assets or Subsidiary of
the Company for the purpose of financing such acquisition); (x) Indebtedness
Incurred to finance capital expenditures in a principal amount not to exceed,
together with other Indebtedness Incurred pursuant to this clause (x) during the
preceding 12 month period, $10 million in the aggregate; (xi) Incurrence of
Capitalized Leases in an amount required to be capitalized on the Company's
consolidated balance sheet not to exceed, together with other Indebtedness
Incurred pursuant to this clause (xi), $3 million during the preceding 12 month
period or $12.5 million since July 28, 1993; (xii) additional Indebtedness under
the Old Bank Credit Agreement in an aggregate principal amount not to exceed $50
million; and (xiii) Indebtedness of the Company not otherwise permitted pursuant
to this covenant, in an aggregate amount not to exceed $25 million at any time
outstanding and Indebtedness of Restricted Subsidiaries not otherwise permitted
pursuant to this covenant, in an aggregate principal amount not to exceed $25
million at any time outstanding.
(b) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, Guarantees of, or obligations with
respect to letters of credit supporting, Indebtedness otherwise included in the
determination of such particular amount shall not be included. For purposes of
determining compliance with this "Limitation on Indebtedness" covenant, (A) in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described in the above clauses, the Company, in its
sole discretion, shall classify such item of Indebtedness and shall only be
required to include the amount and type of such Indebtedness in one of such
clauses and (B) the amount of Indebtedness issued at a price that is less than
the principal amount thereof shall be equal to the amount of the liability in
respect thereof determined in conformity with GAAP.
Limitation on Restricted Payments
So long as any of the Notes are outstanding, the Company will not, and will
not permit any Restricted Subsidiary, directly or indirectly, to (i) declare or
pay any dividend or make any distribution on any class of its Capital Stock
(other than dividends or distributions payable solely in shares of its or such
Restricted Subsidiary's Capital Stock (other than Redeemable Stock) of the same
class as such Capital Stock or in options, warrants or other rights to acquire
shares of such Capital Stock) held by Persons other than the Company or any of
its Restricted Subsidiaries which are Wholly Owned Subsidiaries, (ii) purchase,
redeem, retire or otherwise acquire for value any shares of Capital Stock of the
Company, any Restricted Subsidiary or any Unrestricted Subsidiary (including
options, warrants or other rights to acquire any shares of such Capital Stock)
held by Persons other than the Company or another Restricted Subsidiary that is
a Wholly Owned Subsidiary, (iii) make any voluntary or optional principal
payment, or voluntary or optional redemption, repurchase, defeasance or other
acquisition or retirement for value, of Indebtedness of the Company that is
expressly subordinated in right of payment to the Notes, or (iv) make any
Investment in any Affiliate (other than the Company or a Restricted Subsidiary
that is a Wholly Owned Subsidiary) (such payments or any other actions described
in clauses (i) through (iv) being collectively "Restricted Payments") unless at
the time of and after giving effect to the proposed Restricted Payment: (a) no
Event of Default or event that, after the giving of notice or lapse of time or
both would become an Event of Default, shall have occurred and be continuing,
(b) the Company could Incur at least $1.00 of Indebtedness pursuant to clause
(i) in part (a) of the "Limitation on Indebtedness" covenant and (c) the
aggregate amount expended for all Restricted Payments (the amount so expended,
if other than in cash, to be determined in good faith by the Board of Directors)
after July 28, 1993 (together with any amounts paid after such date pursuant to
clauses (i), (iv) and (vi) in the following paragraph) shall not exceed the sum
of (1) 50% of the aggregate amount of Adjusted
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<PAGE> 54
Consolidated Net Income (or, if adjusted Consolidated Net Income is a loss,
minus 100% of such amount) of the Company accrued on a cumulative basis during
the period (taken as one accounting period) beginning on August 15, 1993 and
ending on the last day of the last fiscal quarter preceding the Transaction Date
plus (2) the aggregate net proceeds (including the fair market value of noncash
proceeds, as determined in good faith by the Board of Directors) received by the
Company from the issuance and sale of its Capital Stock (other than Redeemable
Stock) to any Person other than a Subsidiary of the Company including an
issuance or sale for cash or other property upon the conversion of any
Indebtedness of the Company subsequent to July 28, 1993, or from the issuance of
any options, warrants or other rights to acquire Capital Stock of the Company
(in each case, excluding any Redeemable Stock or any options, warrants or other
rights that are redeemable at the option of the holder, or are required to be
redeemed, prior to the Stated Maturity of the principal of the Notes) plus (3)
an amount equal to the net reduction in Investments in Unrestricted Subsidiaries
resulting from payments of principal of or interest on Indebtedness, dividends
or other transfers of assets, in each case to the Company or any Restricted
Subsidiary from any Unrestricted Subsidiary, or from the redesignation of any
Unrestricted Subsidiary as a Restricted Subsidiary (valued in each case as
provided in the definition of "Investments"), not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made by the
Company or any Restricted Subsidiary in such Unrestricted Subsidiary plus (4)
$10 million.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at the
date of declaration, such payment would comply with the foregoing provision;
(ii) (A) following an initial public offering of the Common Stock of the
Company, the declaration and payment of dividends on the Common Stock of the
Company up to 6% per annum of the net proceeds received by the Company in such
initial public offering or, (B) following an initial public offering of the
Common Stock of Holdings, the declaration and payment of dividends to Holdings
in an amount sufficient to permit Holdings to pay dividends on its Common Stock
in an amount of up to 6% per annum of the net proceeds received by Holdings in
such initial public offering and contributed to the capital of the Company;
(iii) the purchase, redemption, acquisition, cancellation or other retirement
for value of shares of Capital Stock of the Company, Holdings or any Restricted
Subsidiary, options on any such shares or related stock appreciation rights or
similar securities held by officers or employees or former officers or employees
(or their estates or beneficiaries under their estates) and which were issued
pursuant to any stock option plan, upon death, disability, retirement,
termination of employment or pursuant to the terms of such stock option plan or
any other agreement under which such shares of Capital Stock, options, related
rights or similar securities were issued, or the payment of dividends to
Holdings in an amount sufficient to effect such purchase, redemption,
acquisition, cancellation or other retirement for value by Holdings; provided
that the aggregate cash consideration paid for such purchase, redemption,
acquisition, cancellation or other retirement for value of such shares of
Capital Stock, options, related rights or similar securities after July 28, 1993
does not exceed $5 million per annum or $10 million in the aggregate; (iv) the
redemption, repurchase or other acquisition for value of Capital Stock of the
Company or any Subsidiary of the Company in exchange for, or with the proceeds
of a substantially concurrent offering of, other shares of the Capital Stock of
the Company (other than Redeemable Stock); (v) the redemption, repurchase,
defeasance or other acquisition or retirement for value of Indebtedness that is
subordinated in right of payment to the Notes, including premium, if any, and
accrued and unpaid interest, in exchange for or with the proceeds of a
substantially concurrent issuance of, Indebtedness Incurred under clause (iv) in
part (a) of the "Limitation on Indebtedness" covenant; (vi) the redemption,
repurchase, defeasance or other acquisition or retirement for value of
Indebtedness of the Company that is subordinated in right of payment to the
Notes including premium, if any, and accrued and unpaid interest, in exchange
for, or with the proceeds of a substantially concurrent issuance of, shares of,
the Capital Stock of the Company (other than Redeemable Stock); (vii) the
purchase of shares of Capital Stock of Holdings for contributions to the pension
and other employee benefit plans of the Company and its Subsidiaries; provided
that the aggregate consideration paid for such purchases does not, in any one
fiscal year of the Company, exceed an aggregate amount of $1 million; or (viii)
the making of Investments in Unrestricted Subsidiaries in an aggregate amount
not to exceed $25 million outstanding at any time; provided in each case that no
Event of Default, or event that through the giving of notice or lapse of time or
both would become an Event of Default, shall have occurred and be continuing or
shall occur as a consequence thereof.
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Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
So long as any of the Notes are outstanding, the Company will not, and will
not permit any Restricted Subsidiary to, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any Restricted Subsidiary to (i) pay dividends or make any
other distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary,
(ii) pay interest on or principal of any Indebtedness owed to the Company or any
other Restricted Subsidiary, (iii) make loans or advances to the Company or any
other Restricted Subsidiary or (iv) transfer any of its property or assets to
the Company or any other Restricted Subsidiary.
This covenant shall not restrict or prohibit any encumbrances or
restrictions: (i) in the Old Bank Credit Agreement or any other agreements in
effect on July 28, 1993; (ii) with respect to any Person or the property or
assets of such Person, acquired by the Company or any Restricted Subsidiary and
existing prior to such acquisition, which encumbrances or restrictions are not
applicable to such Person or the property or assets of any Person other than
such Person or property or assets of such Person so acquired; (iii) in any
agreement that extends, refinances, renews or replaces agreements containing
restrictions referred to in clause (i) or (ii) above, which encumbrances or
restrictions are no less favorable in any material respect to the Holders than
those encumbrances or restrictions that are then in effect pursuant to the
agreements that are being extended, refinanced, renewed or replaced; (iv) in the
case of clause (iv) of the first paragraph of this "Limitation on Dividend and
Other Payment Restrictions Affecting Restricted Subsidiaries" covenant, (A)
restricting in a customary manner the subletting, assignment or transfer of any
property or asset that is a lease, license, conveyance or contract or similar
property or asset, (B) arising by virtue of any transfer of, or any agreement to
transfer, option or right with respect to, or any Lien on any property or assets
of the Company or any Restricted Subsidiary not otherwise prohibited by the
Indenture or (C) arising or agreed to in the ordinary course of business and
that do not, individually or in the aggregate, detract from the value of the
property or assets of the Company or any Restricted Subsidiary in any manner
material to the Company or such Restricted Subsidiary; (v) that constitute
Permitted Liens; or (vi) under or by reason of applicable law, rule or
regulation (including, without limitation, applicable currency control laws and
applicable state corporate statutes restricting the payment of dividends in
certain circumstances).
Limitation on Transactions with Shareholders and Affiliates
So long as any of the Notes are outstanding, the Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into,
renew or extend any transaction (including, without limitation, the purchase,
sale, lease or, exchange of property or assets, or the rendering of any service)
involving aggregate consideration in excess of $10 million with any holder (or
any Affiliate of such holder) of 5% or more of any class of Capital Stock of the
Company or any Subsidiary of the Company or with any Affiliate of the Company or
any Subsidiary of the Company, except upon fair and reasonable terms no less
favorable to the Company or such Restricted Subsidiary of the Company, than
could be obtained in a comparable arm's-length transaction with a Person that is
not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to: (i) any
transaction in the ordinary course of business between the Company and any
Restricted Subsidiary that is a Wholly Owned Subsidiary of the Company or
between Restricted Subsidiaries that are Wholly Owned Subsidiaries of the
Company; (ii) transactions approved by a majority of the disinterested members
of the Board of Directors (if any); (iii) any payment of moneys or issuance of
Securities pursuant to employment arrangements and employee benefit plans, in
each case approved by the Board of Directors; (iv) the payment of reasonable and
customary regular fees to directors of the Company or any Subsidiary of the
Company who are not employees of the Company or such Subsidiary of the Company;
(v) any payments or other transactions pursuant to any tax-sharing agreement
between the Company and any other Person with which the Company is required or
permitted to file a consolidated tax return or with which the Company is or
could be part of a consolidated group for tax purposes; (vi) any Restricted
Payments permitted under the "Limitation on Restricted Payments" covenant; (vii)
loans or advances by the Company or a Restricted Subsidiary to employees of the
Company or a Restricted Subsidiary in the ordinary course of business; (viii)
any transaction contemplated by
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any stock option plan of the Company; or (ix) the allocation of Indebtedness and
interest expense under the Old Bank Credit Agreement among the Company and one
or more Restricted Subsidiaries.
Limitation on the Issuance of Capital Stock of Restricted Subsidiaries
So long as any Notes are outstanding, the Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, issue or sell any
shares of a Restricted Subsidiary's Capital Stock (including securities
convertible into or exchangeable for such Capital Stock or options, warrants or
other rights to purchase shares of such Capital Stock) except to the Company or
another Restricted Subsidiary that is a Wholly Owned Subsidiary of the Company.
Limitation on Liens
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien
on any asset of the Company or such Restricted Subsidiary, without making
effective provision for all of the Notes and all other amounts due under the
Indenture to be directly secured equally and ratably with (or prior to) the
obligation or liability secured by such Lien unless, after giving effect
thereto, the aggregate amount of any such obligation or liability so secured,
plus the Attributable Indebtedness for all sale-leaseback transactions
restricted as described in the "Limitation on Sale-Leaseback Transactions"
covenant, does not exceed 10% of Consolidated Net Tangible Assets.
Under the terms of the Indenture, the foregoing limitation does not apply
to, and any computation of Indebtedness secured under such limitation shall
exclude: (i) Liens existing on July 28, 1993; (ii) Liens securing obligations
under the Old Bank Credit Agreement, (iii) Liens with respect to Acquired
Indebtedness and refinancings thereof permitted under clause (vi) in part (a) of
the "Limitation on Indebtedness" covenant, provided that such Liens do not
extend to or cover any property or assets of the Company or any Subsidiary of
the Company other than the property or assets of the Subsidiary acquired; (iv)
Liens with respect to the assets of a Restricted Subsidiary granted by such
Restricted Subsidiary to the Company or to a Restricted Subsidiary that is a
Wholly Owned Subsidiary of the Company to secure Indebtedness owing to the
Company or such other Restricted Subsidiary by such Restricted Subsidiary; (v)
Liens granted in connection with the extension, renewal, refinancing or
replacement, in whole or in part, of any secured Indebtedness permitted to be
Incurred under clause (iv) in part (a) of the "Limitation on Indebtedness"
covenant; provided that such Liens do not extend to or cover any property or
assets of the Company or any Restricted Subsidiary other than the property or
assets securing the Indebtedness being refinanced; (vi) Liens in respect of
Capitalized Leases Incurred pursuant to clause (xi) in part (a) of the
"Limitation on Indebtedness" covenant; and (vii) Permitted Liens.
Limitation on Sale-Leaseback Transactions
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, enter into any sale-leaseback transaction, unless
the aggregate amount of all Attributable Indebtedness with respect to such
transactions, plus all Indebtedness secured by Liens (excluding secured
obligations or liabilities that are excluded as described in the second
paragraph of the "Limitation on Liens" covenant), does not exceed 10% of
Consolidated Net Tangible Assets.
The foregoing restriction does not apply to, and any computation of
Attributable Indebtedness under such limitation shall exclude, any
sale-leaseback transaction if, (i) the lease is for a period, including renewal
rights, of not in excess of three years; (ii) the sale or transfer of the
property is entered into prior to, at the time of, or within 12 months after the
later of the acquisition of the property or the completion of construction
thereof; (iii) the lease secures or relates to industrial revenue bonds; (iv)
the transaction is between the Company and any Restricted Subsidiary or between
Restricted Subsidiaries that are Wholly Owned Subsidiaries; or (v) within 12
months after the sale of any property is completed, the Company or such
Restricted Subsidiary applies an amount not less than the net proceeds received
from such sale in the manner described in the second paragraph of the
"Limitation on Asset Sales" covenant.
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Repurchase of Notes upon Change of Control
(a) Upon the occurrence of a Change of Control, each Holder shall have the
right to require the Company to repurchase such Holder's Notes in cash pursuant
to the offer described below (the "Change of Control Offer") at a purchase price
equal to 101% of the principal amount thereof, plus accrued interest (if any) to
the date of purchase (the "Change of Control Payment"). Prior to the mailing of
the notice to Holders provided for in the succeeding paragraph, but in any event
within 30 days following the occurrence of a Change of Control, the Company
covenants to (i) repay or cause to be repaid in full all Indebtedness under the
Old Bank Credit Agreement, or to offer to repay in full all such Indebtedness
and to repay the Indebtedness of each Bank which has accepted such offer or (ii)
obtain the requisite consents under the Old Bank Credit Agreement to permit the
repurchase of the Notes, as provided for in the succeeding paragraph. The
Company shall first comply with the covenant in the preceding sentence before it
shall be required to repurchase Notes pursuant to this "Repurchase of Notes upon
Change of Control" covenant.
(b) Within 30 days after occurrence of a Change of Control, the Company
shall mail a notice to the Trustee and each Holder as of such record date as the
Company shall establish (and deliver such notice to the Trustee at least five
days prior thereto) stating: (i) that a Change of Control has occurred, that the
Change of Control Offer is being made pursuant to this "Repurchase of Notes upon
Change of Control" covenant and that all Notes validly tendered will be accepted
for payment; (ii) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Change of Control Payment Date"); (iii) that any Note
not tendered will continue to accrue interest; (iv) that unless the Company
defaults in the payment of the Change of Control Payment, any Note accepted for
payment pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Payment Date; (v) that Holders electing to have any
Note purchased pursuant to the Change of Control Offer will be required to
surrender such Note, together with the form entitled "Option of the Holder to
Elect Purchase" on the reverse side of such Note completed, to the Paying Agent
at the address specified in the notice prior to the close of business on the
Business Day immediately preceding the Change of Control Payment Date; (vi) that
Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the third Business Day
immediately preceding the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of such Holder, the
principal amount of Notes delivered for purchase and a statement that such
Holder is withdrawing his election to have such Notes purchased; and (vii) that
Holders whose Notes are being purchased only in part will be issued new Notes
equal in principal amount to the unpurchased portion of the Notes surrendered;
provided that each Note purchased and each new Note issued shall be in a
principal amount of $1,000 or integral multiples thereof.
(c) On the Change of Control Payment Date, the Company shall: (i) accept
for payment Notes or portions thereof tendered pursuant to the Change of Control
Offer; (ii) deposit one day prior to the Change of Control Payment Date with the
Paying Agent money sufficient to pay the purchase price of all Notes or portions
thereof so accepted; and (iii) deliver, or cause to be delivered, to the
Trustee, all Notes or portions thereof so accepted together with an Officers'
Certificate specifying the Notes or portions thereof accepted for payment by the
Company. The Paying Agent shall promptly mail, to the Holders of Notes so
accepted, payment in an amount equal to the purchase price, and the Trustee
shall promptly authenticate and mail to such Holders a new Note equal in
principal amount to any unpurchased portion of the Notes surrendered; provided
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or integral multiples thereof. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date. For purposes of this "Repurchase of Notes upon
Change of Control" covenant, the Trustee shall act as Paying Agent.
(d) The Company will comply with Rule 14e-1 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable in
the event that the Company is required to repurchase Notes as described above.
There can be no assurance that the Company will have sufficient funds to
repurchase Notes upon the occurrence of a Change of Control. In particular, the
New Bank Credit Agreement will permit Pueblo to pay
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dividends to the Company only in an amount sufficient to make interest payments
on the Notes and would not permit dividend payments to provide funds for the
repurchase of Notes upon the occurrence of a Change of Control.
Limitation on Asset Sales
(a) Under the terms of the Indenture, neither the Company nor any
Restricted Subsidiary shall consummate any Asset Sale (other than an Asset Sale
in connection with a sale-leaseback transaction complying with the "Limitation
on Sale Leaseback Transaction" covenant described above) unless (i) the Company
or such Restricted Subsidiary receives consideration at the time of such Asset
Sale having a value (including the value of any noncash consideration, as
determined in good faith by the Board of Directors) at least equal to the fair
market value (as determined in good faith by the Board of Directors) of the
shares or assets subject to such Asset Sale, (ii) at least 80% of such
consideration is in the form of cash (including, for purposes of this clause
(ii), (A) the principal amount of any Indebtedness (as reflected on the
Company's consolidated balance sheet) of the Company or any Restricted
Subsidiary for which the Company and its Restricted Subsidiaries will cease to
be liable, directly or indirectly, as a result of such Asset Sale; and (B)
securities that are promptly converted into cash) and (iii) 100% of the Net Cash
Proceeds with respect to such Asset Sale are applied by the Company or such
Restricted Subsidiary as set forth in the succeeding paragraph.
In the event and to the extent that the Net Cash Proceeds received by the
Company or any Restricted Subsidiary from one or more Asset Sales occurring on
or after July 28, 1993 in any period of 12 consecutive months (other than Asset
Sales by the Company or another Restricted Subsidiary to the Company or another
Restricted Subsidiary) exceed 15% of Consolidated Net Tangible Assets in any one
fiscal year (determined as of the date closest to the commencement of such
12-month period for which a balance sheet of the Company and its Subsidiaries
has been prepared), then within 12 months following the date of such event, the
Company or such Restricted Subsidiary shall apply such excess Net Cash Proceeds
(A) first, to the extent the Company or such Subsidiary elects, to invest (or to
enter into a definitive agreement committing so to invest within 12 months after
the date of such agreement) in property or assets that (as determined in good
faith by the Board of Directors) are of a nature or type or are used in a
business (or in a company having property and assets of a nature or type, or
engaged in a business) similar or related to the nature or type of the property
and assets of, or to the business of, the Company and its Restricted
Subsidiaries existing on the date of such Asset Sale; (B) second, to the extent
of the balance of such excess Net Cash Proceeds after application in accordance
with clause (A) and to the extent the Company or such Restricted Subsidiary
elects, to prepay, repay or purchase the Existing Notes or Indebtedness of any
Restricted Subsidiary; provided that the Company or such Restricted Subsidiary
shall repay such Indebtedness and cause the related loan commitment to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased and (C) third, to the extent of the balance of such excess
Net Cash Proceeds after application in accordance with clauses (A) and (B), to
make an offer to purchase Notes as set forth below. The amount of such excess
Net Cash Proceeds required to be applied (or committed to be applied) during
such 12-month period as set forth in clause (A) or (B) of the preceding sentence
and not applied as so required by the end of such period shall constitute
"Excess Proceeds".
(b) If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as
hereinafter defined) totals at least $10 million, the Company must, not later
than the fifteenth Business Day of such month, make an offer (an "Excess
Proceeds Offer") to purchase from the Holders on a pro rata basis an aggregate
principal amount of Notes equal to the Excess Proceeds on such date (rounded
down to the nearest $1,000), at a purchase price equal to 101% of the principal
amount thereof, plus, in each case, accrued interest (if any) to the date of
purchase (the "Excess Proceeds Payment").
(c) The Company shall commence an Excess Proceeds Offer by mailing a notice
to the Trustee and each Holder as of such record date as the Company shall
establish (and delivering such notice to the Trustee at least five days prior
thereto) stating: (i) that the Excess Proceeds Offer is being made pursuant to
this "Limitation on Asset Sales" covenant and that all Notes validly tendered
will be accepted for payment on a
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pro rata basis; (ii) the purchase price and the date of purchase (which shall be
a Business Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Excess Proceeds Payment Date"); (iii) that any Note not
tendered will continue to accrue interest; (iv) that, unless the Company
defaults in the payment of the Excess Proceeds Payment, any Note accepted for
payment pursuant to the Excess Proceeds Offer shall cease to accrue interest on
or after the Excess Proceeds Payment Date; (v) that Holders electing to have any
Note purchased pursuant to the Excess Proceeds Offer will be required to
surrender such Note, together with the form entitled "Option of the Holder to
Elect Purchase" on the reverse side of such Note completed, to the Paying Agent
at the address specified in the notice prior to the close of business on the
Business Day immediately preceding the Excess Proceeds Payment Date; (vi) that
Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the third Business Day
immediately preceding the Excess Proceeds Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of such Holder, the
principal amount of Notes delivered for purchase and a statement that such
Holder is withdrawing his election to have such Notes purchased; and (vii) that
Holders whose Notes are being purchased only in part will be issued new Notes
equal in principal amount to the unpurchased portion of the Notes surrendered;
provided that each Note purchased and each new Note issued shall be in a
principal amount of $1,000 or integral multiples thereof.
(d) On the Excess Proceeds Payment Date, the Company shall: (i) accept for
payment on a pro rata basis Notes or portions thereof tendered pursuant to the
Excess Proceeds Offer; (ii) deposit one day prior to the Excess Proceeds Payment
Date with the Paying Agent money sufficient to pay the purchase price of all
Notes or portions thereof so accepted; and (iii) deliver, or cause to be
delivered, to the Trustee, all Notes or portions thereof so accepted, together
with an Officers' Certificate specifying the Notes or portions thereof accepted
for payment by the Company. The Paying Agent shall promptly mail to the Holders
of Notes so accepted payment in an amount equal to the purchase price, and the
Trustee shall promptly authenticate and mail to such Holders a new Note equal in
principal amount to any unpurchased portion of the Note surrendered; provided
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or integral multiples thereof. The Company will publicly announce the
results of the Excess Proceeds Offer as soon as practicable after the Excess
Proceeds Payment Date. For purposes of this "Limitation on Asset Sales"
covenant, the Trustee shall act as the Paying Agent.
(e) The Company will comply with Rule 14e-l under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that the Company is required to
repurchase Notes as described above. The Trustee shall not be responsible for
determining whether compliance with such Rule 14e-1 is required or has been
satisfied.
Provision of Financial Statements
So long as the Notes remain outstanding, the Company shall file with the
Commission quarterly reports (containing unaudited financial statements) for the
first three quarters of each fiscal year and annual reports (containing audited
financial statements and an opinion thereon by the Company's independent
certified public accountants) that it would be required to file under the
Exchange Act if it had a class of securities listed on a national securities
exchange. The Company shall mail such reports to each Holder of the Notes within
15 days of filing.
EVENTS OF DEFAULT
An "Event of Default" occurs with respect to the Notes if: (i) the Company
defaults in the payment of principal of (or premium, if any, on) any Note, when
the same becomes due and payable at maturity, upon acceleration, redemption or
otherwise; (ii) the Company defaults in the payment of interest on any Note, as
and when the same becomes due and payable, and such default continues for a
period of 30 days; (iii) the Company defaults in the performance of or breaches
any other covenant or agreement of the Company in the Indenture or under the
Notes and such default or breach continues for a period of 30 consecutive days
after written notice by the Trustee or the Holders of 25% or more in aggregate
principal amount of the Notes; (iv) the Company or any Restricted Subsidiary
fails to make (a) a principal payment of $10 million or more at the final (but
not any interim) Stated Maturity of any issue of Indebtedness or (b) principal
payments
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aggregating $10 million or more at the final (but not any interim) Stated
Maturity of more than one issue of Indebtedness and, in the case of clause (a),
such defaulted payment shall not have been made, waived or extended within 30
days of the payment default and, in the case of clause (b), all such defaulted
payments shall not have been made, waived or extended within 30 days of the
payment default that causes the amount described in clause (b) to exceed $10
million; (v) there occurs with respect to any Indebtedness of the Company or any
Restricted Subsidiary having an outstanding principal amount, individually or in
the aggregate, of $10 million or more, an event of default that has caused the
holder or holders thereof, or representatives of such holder or holders, to
declare such Indebtedness to be due and payable prior to its Stated Maturity and
such Indebtedness has not been discharged in full or such acceleration has not
been rescinded or annulled within 30 days of such acceleration; (vi) final
judgments or orders (not covered by insurance) for the payment of money in
excess of $10 million in the aggregate for all such final judgments or orders
against all such Persons (treating any deductibles, self-insurance or retention
as not so covered) shall be rendered against the Company or any Restricted
Subsidiary and shall not be discharged, and there shall be any period of 30
consecutive days following entry of the final judgment or order in excess of $10
million individually or that causes the aggregate amount for all such final
judgments or orders outstanding against all such Persons to exceed $10 million
during which a stay of enforcement of such final judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect; (vii) a court having
jurisdiction in the premises enters a decree or order for (a) relief in respect
of the Company or any Significant Subsidiary in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, (b) appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (c) the winding up or liquidation of the affairs of
the Company or any Significant Subsidiary and, in each case, such decree or
order shall remain unstayed and in effect for a period of 60 consecutive days;
or (viii) the Company or any Significant Subsidiary (a) commences a voluntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consents to the entry of an order for relief in an
involuntary case under any such law, (b) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (c) effects any general assignment for the benefit of
creditors.
If an Event of Default (other than an Event of Default specified in clause
(vii) or (viii) above that occurs with respect to the Company) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% of
the aggregate principal amount of the Notes then outstanding, by written notice
to the Company (and to the Trustee if such notice is given by such Holders (the
"Acceleration Notice")), may, and the Trustee at the request of such Holders
shall, declare the entire unpaid principal of, premium, if any, and accrued
interest on the Notes to be due and payable. Upon a declaration of acceleration,
such principal, premium, if any, and accrued interest shall become due and
payable on the earlier of (x) an acceleration of Indebtedness under the Old Bank
Credit Agreement and (y) the fifth day following such declaration (but only if
the relevant Event of Default continues unremedied). In the event of a
declaration of acceleration because an Event of Default set forth in clause (iv)
or (v) above has occurred and is continuing, such declaration of acceleration
shall be automatically rescinded and annulled if the event of default triggering
such Event of Default pursuant to clause (iv) or (v) shall be remedied or cured
by the Company or such Restricted Subsidiary or waived by the holders of the
Indebtedness referred to in such clauses within 60 days after such declaration
of acceleration. If an Event of Default specified in clause (vii) or (viii)
above occurs with respect to the Company, all unpaid principal of, premium, if
any, and accrued interest on the Notes then outstanding shall become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. The Holders of at least a majority in principal
amount of the outstanding Notes, by written notice to the Company and to the
Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default (other
than the nonpayment of the principal of, premium, if any, and interest on the
Notes that have become due solely by such declaration of acceleration) have been
cured or waived and (ii) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction. For information as to the waiver of
defaults, see "Modification and Waiver".
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The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that the Trustee is advised by counsel conflicts with law or the
Indenture, that may cause the Trustee to suffer or incur personal liability or
that the Trustee determines in good faith may be unduly prejudicial to the
rights of Holders not joining in the giving of such direction. A Holder may not
pursue any remedy with respect to the Indenture or the Notes unless: (i) the
Holder gives to the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of outstanding
Notes make a written request to the Trustee to pursue the remedy; (iii) such
Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee
against any costs, liability or expense; (iv) the Trustee does not comply with
the request within 60 days after receipt of the request and the offer of
indemnity, and (v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations do
not apply to the right of any Holder to receive payment of the principal of,
premium, if any, or interest on the Notes, or to bring suit for the enforcement
of any such payment, on or after the respective due dates expressed in the
Notes, which rights shall not be impaired or affected without the consent of
such Holder.
The Indenture requires certain officers of the Company to certify, on or
before a date not more than 120 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and its Subsidiaries
and the Company's and its Subsidiaries' performance under the Indenture and that
the Company has fulfilled all obligations thereunder, or, if there has been a
default in the fulfillment of any such obligation, specifying each such default
and the nature and status thereof. The Company is also obligated to notify the
Trustee of any default or defaults in the performance of any covenants or
agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company shall not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially as an entirety in one
transaction or a series of related transactions) to, any Person or permit any
Person to merge with or into the Company (other than a merger of the Company
with (but not into) a Restricted Subsidiary that is a Wholly Owned Subsidiary of
the Company with a positive stockholder's equity determined in accordance with
GAAP; provided that, in connection with any such merger, no consideration (other
than common stock in the Company) shall be issued or distributed to the
stockholders of the Company) unless: (i) the Company shall be the continuing
Person, or the Person (if other than the Company) formed by such consolidation
or into which the Company is merged or that acquires or leases such property and
assets of the Company shall be a corporation organized and validly existing
under the laws of the United States of America or any jurisdiction thereof and
shall expressly assume, by supplemental indenture, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all of the obligations of the
Company on all of the Notes and under the Indenture; (ii) immediately after
giving effect to such transaction, no Event of Default, and no event that after
the giving of notice or lapse of time or both would become an Event of Default,
shall have occurred and be continuing; (iii) immediately after giving effect to
such transaction on a pro forma basis, the Company (or any Person that becomes
the successor obligor on the Notes) shall have a Consolidated Net Worth equal to
or greater than the Consolidated Net Worth of the Company immediately prior to
such transaction; (iv) immediately after giving effect to such transaction on a
pro forma basis, the Company (or any Person that becomes the successor obligor
on the Notes) shall be able to Incur at least $1.00 of additional Indebtedness
pursuant to clause (i) of paragraph (a) of the "Limitation on Indebtedness"
covenant; and (v) the Company delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with clauses
(iii) and (iv)) and an Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture comply with
this provision and that all conditions precedent provided for herein relating to
such transaction have been complied with.
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DEFEASANCE
The Indenture provides that the Company will be deemed to have paid and
will be discharged from any and all obligations in respect of the Notes on the
123rd day after the deposit referred to below, and the provisions of such
Indenture will no longer be in effect with respect to the Notes (except for,
among other matters, certain obligations to register the transfer or exchange of
the Notes, to replace stolen, lost or mutilated Notes, to maintain paying
agencies and to hold monies for payment in trust) if, among other things, (A)
the Company has deposited with the Trustee, in trust, money and/or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Notes on the Stated Maturity of such payments in accordance with the terms of
the Indenture and the Notes, (B) the Company has delivered to the Trustee (i)
either an Opinion of Counsel to the effect that Holders will not recognize
income, gain or loss for federal income tax purposes as a result of the
Company's exercise of its option under this "Defeasance" provision and will be
subject to federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such deposit, defeasance and
discharge had not occurred or a ruling directed to the Trustee received from the
Internal Revenue Service to the same effect as the aforementioned Opinion of
Counsel and (ii) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940 and after
the passage of 123 days following the deposit, the trust fund will not be
subject to the effect of Section 547 of the United States Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law, (C) immediately after giving
effect to such deposit on a pro forma basis, no Event of Default, or event that
after the giving of notice or lapse of time or both would become an Event of
Default, shall have occurred and be continuing on the date of such deposit or
during the period ending on the 123rd day after the date of such deposit, and
such deposit shall not result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which the Company is a party
or by which the Company is bound, and (D) if at such time the Notes are listed
on a national securities exchange, the Company has delivered to the Trustee an
Opinion of Counsel to the effect that the Notes will not be delisted as a result
of such deposit, defeasance and discharge.
The Indenture further provides that the provisions of the Indenture will no
longer be in effect with respect to clauses (iii) and (iv) under "Consolidation,
Merger and Sale of Assets" and all the covenants described herein under
"Covenants," clause (iii) under "Events of Default" with respect to such
covenants and clauses (iii) and (iv) under "Consolidation, Merger and Sale of
Assets", and clauses (iv), (v) and (vi) under "Events of Default" shall be
deemed not to be Events of Default, upon, among other things, the deposit with
the Trustee, in trust, of money and/or U.S. Government Obligations that through
the payment of interest and principal in respect thereof in accordance with
their terms will provide money in an amount sufficient to pay the principal of,
premium, if any, and accrued interest on the Notes, on the Stated Maturity of
such payments in accordance with the terms of Indenture and the Notes the
satisfaction of the provisions described in clauses (B)(ii), (C) and (D) of the
preceding paragraph and the delivery by the Company to the Trustee of an Opinion
of Counsel to the effect that, among other things, the Holders of the Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such deposit and defeasance of certain covenants and Events of Default and
will be subject to federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such deposit and defeasance
had not occurred.
In the event the Company exercises its option to omit compliance with
certain covenants and provisions of the Indenture with respect to the Notes as
described in the immediately preceding paragraph and the Notes are declared due
and payable because of the occurrence of an Event of Default that remains
applicable, the amount of money and/or U.S. Government Obligations on deposit
with the Trustee will be sufficient to pay amounts due on the Notes at the time
of their Stated Maturity but may not be sufficient to pay amounts due on the
Notes at the time of the acceleration resulting from such Event of Default.
However, the Company shall remain liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of not less that a majority in
aggregate principal amount of the outstanding Notes;
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provided, however, that no such modification or amendment may, without the
consent of each Holder affected thereby, (i) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, (ii) reduce the
principal amount of, premium, if any, or interest on, any Note or alter the
redemption provisions with respect thereto, (iii) change the place or currency
of payment of principal of, premium, if any, or interest on, any Note, (iv)
impair the right to institute suit for the enforcement of any payment on or
after the Stated Maturity (or, in the case of a redemption, on or the Redemption
Date) of any Note, (v) reduce the above-stated percentage of outstanding Notes,
the consent of whose Holders is necessary to modify or amend the Indenture, (vi)
waive a default in the payment of principal of, premium, if any, or interest on
the Notes, or (vii) reduce the percentage of aggregate principal amount of
outstanding Notes the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults.
The Holders of a majority in aggregate principal amount of the outstanding
Notes may waive compliance by the Company with certain restrictive provisions of
the Indenture.
NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes, or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company contained in the Indenture or
in any of the Notes or because of the creation of any Indebtedness represented
thereby, shall be had against any incorporator, or past, present or future
shareholder, officer, director, employee or controlling person of the Company or
of any successor thereof. Each Holder, by accepting such Notes, waives and
releases all such liability.
THE TRUSTEE
United States Trust Company of New York, the Trustee under the Indenture,
is the initial paying agent and registrar for the Notes. United States Trust
Company of New York is also the trustee under the Indenture relating to the
Existing Notes.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. If an Event of Default has occurred and is continuing, the
Trustee will exercise such rights and powers vested in it under the Indenture
and use the same degree of care and skill in its exercise as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein, contain limitations on the rights of
the Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, that, if it
acquires any conflicting interest (as hereinafter defined), it must eliminate
such conflict upon the occurrence of an Event of Default or else resign.
GOVERNING LAW
The Indenture and the Notes are governed by, and are to be construed in
accordance with, the laws of the State of New York.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Exchange Notes will initially be issued in
the form of one Global Note (the "Global Note"). Upon issuance, the Global Note
will be deposited with, or on behalf of, The Depository Trust Company (the
"Depositary") and registered in the name of Cede & Co., as nominee of the
Depositary (such nominee being referred to herein as the "Global Note Holder").
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry
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changes in accounts of its Participants. The Depositary's Participants include
securities brokers and dealers (including the Initial Purchasers), banks and
trust companies, clearing corporations and certain other organizations. Access
to the Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect Participants"
or the "Depositary's Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Persons who are not Participants may beneficially own securities held by or on
behalf of the Depositary only through the Depositary's Participants or the
Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary ownership of the Notes evidenced by the Global Note will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by the Depositary (with respect to the interests of the Depositary's
Participants), the Depositary's Participants and the Depositary's Indirect
Participants. The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to own, transfer or pledge Notes evidenced by the Global Note will be
limited to such extent.
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of any
Notes evidenced by the Global Note. Beneficial owners of Notes evidenced by the
Global Note will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depositary or for maintaining, supervising or reviewing
any records of the Depositary relating to the Notes.
Payments in respect of the principal of, premium, if any, and interest on
any Notes registered in the name of the Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of the Global
Note Holder in its capacity as the registered Holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the persons in
whose names Notes, including the Global Note, are registered as the owners
thereof for the purpose of receiving such payments. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of Notes. The Company believes,
however, that it is currently the policy of the Depositary to immediately credit
the accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of the Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of Notes will be governed by standing instructions and
customary practice and will be the responsibility of the Depositary's
Participants or the Depositary's Indirect Participants.
Certificated Notes
If (i) the Company notifies the Trustee in writing that the Depositary is
no longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
the form of Certificated Securities under the Indenture then, upon surrender by
the Global Note Holder of its Global Note, Certificated Notes will be issued to
each person that the Global Note Holder and the Depositary identify as being the
beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person became a Subsidiary.
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"Adjusted Consolidated Net Income" means, for any Person for any period,
the aggregate net income (or loss) of such Person and its consolidated
Subsidiaries for such period determined in accordance with GAAP, provided that
the following items shall be excluded in computing Adjusted Consolidated Net
Income (without duplication): (i) the net income (or loss) of any Person (other
than a Subsidiary) in which such Person or any of its Subsidiaries has a joint
interest with a third party, except to the extent of the amount of dividends or
other distributions actually paid to such Person or any of its Subsidiaries by
such other Person during such period, (ii) solely for the purpose of calculating
the amount of Restricted Payments that may be pursuant to the first paragraph of
the "Limitation on Restricted Payments" covenant described above (and in such
case, except to the extent includible pursuant to clause (i) above), the net
income (or loss) of any other Person accrued prior to the date it becomes a
Subsidiary of such Person or is merged into or consolidated with such Person or
any of its Subsidiaries or all or substantially all of the property and assets
of such other Person are acquired by such Person or any of its Subsidiaries,
(iii) the net income (or loss) of any Subsidiary of such Person to the extent
that the declaration or payment of dividends or similar distributions by such
Subsidiary of such net income is not at the time permitted by the operation of
the terms of its charter or any agreement, instrument, judgement, decree, order,
statute, rule or governmental regulation applicable to such Subsidiary, (iv) any
gains or losses (on an after-tax basis) attributable to Asset Sales, (v) any
amounts paid or accrued as dividends on Preferred Stock of any Subsidiary of
such Person, and (vi) all extraordinary gains and extraordinary losses.
Notwithstanding the foregoing, (x) solely for the purposes of calculating the
Consolidated Fixed Charge Ratio (and in such case, except to the extent
includible pursuant to clause (i) above), "Adjusted Consolidated Net Income" of
the Company shall include the amount of all cash dividends received by the
Company or any Subsidiary of the Company from an Unrestricted Subsidiary and (y)
"Adjusted Consolidated Net Income" shall include gains attributable to sales of
equipment made in connection with store renovations and improvements in an
amount not to exceed $1 million in any fiscal year of the Company.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise. Solely for the purpose
of the definition of "Change of Control", the term "Affiliate" shall be deemed
to include, with respect to Gustavo Cisneros and Ricardo Cisneros, any member or
members of the family of either Gustavo Cisneros or Ricardo Cisneros or any
trust primarily for the benefit of one or more such Persons.
"Asset Acquisition" means (i) an investment by the Company or any of its
Subsidiaries in any other Person pursuant to which such Person shall become a
Subsidiary of the Company or any of its Subsidiaries or shall be merged into or
consolidated with the Company or any of its Subsidiaries or (ii) an acquisition
by the Company or any of its Subsidiaries of the property and assets of any
Person (other than the Company or any of its Subsidiaries) that constitute
substantially all of an operating unit or business of such Person.
"Asset Disposition" means the sale or other disposition by the Company or
any of its Subsidiaries (other than the Company or another Subsidiary of the
Company) of (i) all or substantially all of the Capital Stock of any Subsidiary
of the Company or (ii) all or substantially all of the property and assets that
constitute an operating unit or business of the Company or any of its
Subsidiaries.
"Asset Sale" means, with respect to any Person, any sale, transfer or other
disposition (including by way of merger, consolidation or sale-leaseback
transactions) in one transaction or a series of related transactions by such
Person or any of its Subsidiaries to any Person (other than to the Company or
any of its Subsidiaries) of (i) all or any of the Capital Stock of any
Subsidiary of such Person, (ii) all or substantially all of the property and
assets of an operating unit or business of such Person or any of its
Subsidiaries or (iii) any other property and assets of such Person or any of its
Subsidiaries outside the ordinary course of business and, in each case, that is
not governed by the provisions in the Indenture applicable to mergers,
consolidations and transfers of all or substantially all of the party and assets
of the Company; provided that sales or other dispositions of inventory,
receivables and other current assets in the ordinary course of business shall
not be included within the meaning of such term.
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"Attributable Indebtedness" means, when used in connection with a
sale-leaseback transaction referred to in the "Limitation on Sale-Leaseback
Transactions" covenant described above, at any date of determination, the
product of (i) the net proceeds from such sale-leaseback transaction and (ii) a
fraction, the numerator of which is the number of full years of the term of the
lease relating to the property involved in such sale-leaseback transaction
(without regard to any options to renew or extend such term) remaining at the
date of determination and the denominator of which is the number of full years
of the term of such lease (without regard to any options to renew or extend such
term) measured from the first day of such term.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the product of (a)
the number of years from such date of determination to the dates of each
successive schedule principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Banks" means the lenders who are from time to time parties to the Old Bank
Credit Agreement.
"Board of Directors" means the Board of Directors of the Company or any
committee of such Board of Directors duly authorized to act under the Indenture.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in The City of New York, or in the city of the Corporate
Trust Office of the Trustee, are authorized by law to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designed, whether voting
non-voting) of capital stock of such Person which is outstanding or issued on or
after July 28, 1993, including, without limitation, all Common Stock and
Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in accordance with GAAP, is
required to be capitalized on the balance sheet of such Person; and "Capitalized
Lease Obligation" means the rental obligations, as aforesaid, under such lease.
"Change of Control" shall be deemed to have occurred at such time as (i)
(a) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of
the Exchange Act), other than Gustavo Cisneros, Ricardo Cisneros and their
respective Affiliates, becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of more than 35% of the total voting power of the then
outstanding Voting Stock of the Company or Holdings and (b) Gustavo Cisneros,
Ricardo Cisneros and their respective Affiliates beneficially own, directly or
indirectly, less than 50% of the total voting power of the then outstanding
Voting Stock of the company; or (ii) at any time when Gustavo Cisneros, Ricardo
Cisneros or their respective Affiliates beneficially own, directly or
indirectly, less than 50% of the total voting power of the then outstanding
Voting Stock of the Company, individuals who at the beginning of any period of
two consecutive calendar years constituted the board of directors of the Company
or Holdings (together with any new directors whose election by the board of
directors of the Company or Holdings or whose nomination for election by the
shareholders of the Company or Holdings was approved by a vote of at least a
majority of the members of the board of directors of the Company or Holdings
then still in office who either were members of the board of directors of the
Company or Holdings at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the members of the board of directors of the Company or
Holdings, as the case may be.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of common stock of such Person which is outstanding or
issued on or after July 28, 1993, including, without limitation, all series and
classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person for any period, the
sum of the amounts for such period of (i) Adjusted Consolidated Net Income, (ii)
Consolidated Fixed Charges, (iii) income taxes (calculated excluding the effect
of extraordinary and nonrecurring gains or losses on sales of assets),
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(iv) depreciation expense, (v) amortization expense and (vi) all other noncash
items reducing Adjusted Consolidated Net Income, less all noncash items
increasing Adjusted Consolidated Net Income, all as determined on a consolidated
basis for such Person and its consolidated Subsidiaries in conformity with GAAP;
provided that, if a Person has any Subsidiary that is not a Wholly Owned
Subsidiary of such Person, Consolidated EBITDA of such Person shall be reduced
by an amount equal to the Adjusted Consolidated Net Income of such Subsidiary
multiplied by the quotient of (x) the number of shares of outstanding Common
Stock of such Subsidiary not owned on the last day of such period by such Person
or any Subsidiary of such Person divided by (y) the total number of shares of
outstanding Common Stock of such Subsidiary on the last day of such period.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, without duplication, the sum of (i) Consolidated Interest Expense, (ii)
all but the principal component in respect of Capitalized Lease Obligations, and
(iii) cash dividends payable on Preferred Stock issued by a Subsidiary of such
Person and on Redeemable Stock, determined on a consolidated basis for such
Person and its consolidated Subsidiaries in accordance with GAAP (except as
otherwise expressly specified herein) excluding, however, any such amounts of
any Subsidiary of such Person if the net income (or loss) of such Subsidiary for
such period is excluded in the calculation of Adjusted Consolidated Net Income
for such Person pursuant to clause (iii) of the definition thereof (but only in
the same proportion as the net income (or loss) of such Subsidiary is excluded
from the calculation of Adjusted Consolidated Net Income for such Person
pursuant to clause (iii) of the definition thereof).
"Consolidated Fixed Charge Ratio" means, with respect to any Person on any
Transaction Date, the ratio of (i) the aggregate amount of Consolidated EBITDA
of such Person for the four fiscal quarters for which financial information in
respect thereof is available immediately prior to such Transaction Date (the
"Reference Period") to (ii) the aggregate Consolidated Fixed Charges of such
Person during the Reference Period. In making the foregoing calculation, (a) pro
forma effect shall be given to any Indebtedness Incurred during or after the
Reference Period and on or before the Transaction Date, to the extent such
Indebtedness is outstanding at the Transaction Date, in each case as if such
Indebtedness had been Incurred on the first day of the Reference Period and
after giving effect to the application of the proceeds thereof; (b) Consolidated
Interest Expense attributable to interest on any Indebtedness (whether existing
or being Incurred) computed on a pro forma basis and bearing a floating interest
rate shall be computed as if the rate in effect on the date of computation
(taking into account any Interest Rate Agreement applicable to such Indebtedness
if such Interest Rate Agreement has a remaining term in excess of 12 months) had
been the applicable rate for the entire period; (c) there shall be excluded from
Consolidated Interest Expense any amounts relating to Indebtedness that was
outstanding during or after the Reference Period or thereafter but which is not
outstanding or which has been or is to be repaid with the proceeds of other
Indebtedness Incurred during or after the Reference Period and on or before the
Transaction Date; (d) pro forma effect shall be given to Asset Dispositions and
Asset Acquisitions that occur during or after the Reference Period and on or
before the Transaction Date as if they had occurred on the first day of the
Reference Period; (e) pro forma effect shall be given, in the same manner as
provided in the foregoing clause (d), to asset dispositions and asset
acquisitions made by any Person that has become a Subsidiary of the Company or
has been merged with or into the Company or any Subsidiary of the Company during
or after the Reference Period and on or before the Transaction Date and that
would have been Asset Dispositions or Asset Acquisitions had such transactions
occurred when such Person was a Subsidiary of the Company; and (f) with respect
to any Reference Period commencing prior to the date of consummation of the
Refinancing Plan, the Refinancing Plan shall be deemed to have taken place on
the first day of the Reference Period.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the aggregate amount of interest in respect of Indebtedness (including
amortization of OID on any Indebtedness and the interest portion of any deferred
payment obligation, calculated in accordance with the effective interest method
of accounting; all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, and the net
costs associated with Interest Rate Agreements); excluding, however, any
premiums, fees and expenses (and any amortization thereof) payable in connection
with the
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Refinancing Plan, all as determined for such Person and its consolidated
Subsidiaries on a consolidated basis in conformity with GAAP.
"Consolidated Net Tangible Assets" means, at any date of determination, the
total amount of assets of the Company and its Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its consolidated
Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, all as set forth on the then most recently available consolidated
balance sheet of the Company and its consolidated Subsidiaries prepared in
conformity with GAAP.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the then most recently available consolidated balance
sheet of the Company and its consolidated Subsidiaries (which shall be as of a
date not more than 60 days prior to the date of such computation), less any
amounts attributable to Redeemable Stock or any equity security convertible into
or exchangeable for Indebtedness, the cost of treasury stock and the principal
amount of any promissory notes receivable from the sale of Capital Stock of the
Company or any of its Subsidiaries, each item to be determined in conformity
with GAAP (excluding the effects of foreign currency exchange adjustments under
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 52).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement destined to protect the
Company or any of its Subsidiaries against fluctuations in currency values to or
under which the Company or any of its Subsidiaries is a party or a beneficiary
on July 28, 1993 or becomes a party or beneficiary thereafter.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of July 28, 1993 applied on a basis consistent with
the principles, methods, procedures and practices employed in the preparation of
the Company's audited financial statements, including, without limitation, those
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Holder" or "Securityholder" means the registered holder of any Note.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness;
provided that neither the accrual of interest (whether such interest is payable
in cash or kind) nor the accretion of OID shall be considered an Incurrence of
Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) all
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obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after the
date of placing such property in service or taking delivery and title thereto or
the completion of such services, except Trade Payables, (v) all obligations of
such Person as lessee under Capitalized Leases, (vi) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (a) the fair market value of such asset at
such date of determination and (b) the amount of such Indebtedness, (vii) all
Indebtedness of other Persons Guaranteed by such Person to the extent such
Indebtedness is Guaranteed by such Person, (viii) to the extent not otherwise
included in this definition, all obligations of such Person under Currency
Agreements and Interest Rate Agreements and (ix) all Preferred Stock of
Subsidiaries and all Redeemable Stock, valued in each case at the greater of its
voluntary or involuntary liquidation preference plus accrued and unpaid
dividends. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date; provided
that the amount outstanding at any time of any Indebtedness issued with OID is
the face amount of such Indebtedness less the remaining unamortized portion of
the OID of such Indebtedness at such time as determined in conformity with GAAP.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement or other similar agreement or arrangement designed
to protect the Company or any of its Subsidiaries against fluctuations in
interest rates to or under which the Company or any of its Subsidiaries is a
party or a beneficiary on July 28, 1993 or becomes a party or a beneficiary
thereafter.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan (other than advances to customers in the ordinary course of
business that are recorded as accounts receivable on the balance sheet of such
Person or its Subsidiaries) or other extension of credit or capital contribution
to any other Person (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of Capital Stock, bonds,
notes, debentures or other similar instruments issued by any other Person. For
purposes of the definition of "Unrestricted Subsidiary" and the "Limitation on
Restricted Payments" covenant described above, (i) the amount of any
"Investment" in any Unrestricted Subsidiary shall include the fair market value
of the net assets of any Subsidiary of the Company at the time that such
Subsidiary of the Company is designated an unrestricted Subsidiary and the fair
market value of the net assets of any Unrestricted Subsidiary at the time that
such Unrestricted Subsidiary is designated a Restricted Subsidiary of the
Company shall be treated as a reduction in Investments in Unrestricted
Subsidiaries, subject to the limitation set forth in clause (3) of the first
paragraph of the "Limitation on Restricted Payments" covenant described above
and (ii) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time such transfer, in each case as
determined by the Board of Directors in good faith.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof, any sale with recourse
against the seller or any Affiliate of the seller, or any agreement to give any
security interest).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of
such Asset Sale in the form of cash or cash equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Subsidiary of the Company) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale computed without
regard to the consolidated results of operations of the Company and its
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that is either (a)
secured by a Lien on the property or assets sold or (b) required to be paid as a
result of such sale and
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(iv) appropriate amounts to be provided by the Company or any Subsidiary of the
Company as a reserve against liabilities associated with such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
determined in conformity with GAAP.
"Old Bank Credit Agreement" means the Credit Agreement dated as of July 21,
1993, as amended, among Holdings, the Company, Pueblo and The Chase Manhattan
Bank (National Association) and Scotiabank de Puerto Rico as Administrative
Agents for the Banks party thereto, together with the related documents thereto
(including, without limitation, any guarantees and security documents), which
may consist of a term loan facility and a revolving credit facility, in each
case as such agreements may be amended (including any amendment and restatement
thereof), supplemented, replaced, refinanced or otherwise modified from time to
time (including pursuant to the New Bank Credit Agreement).
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory Liens of landlords and carriers,
warehousemen, mechanics, supplies, materialmen, repairmen or other similar Liens
arising in the ordinary course of business and with respect to amounts not yet
delinquent or being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred or deposits
made to secure the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return of money bonds and other obligations of a
similar nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money); (v) easements, rights-of-way,
municipal and zoning ordinances and similar charges, encumbrances, title defects
or other irregularities that do not materially interfere with the ordinary
course of business of the Company or any of its Subsidiaries; (vi) Liens
(including extensions and renewals thereof) upon real or tangible personal
property acquired after July 28, 1993; provided that (a) such Lien is created
solely for the purpose of securing Indebtedness Incurred (1) to finance the cost
(including the cost or improvement or construction) of the item of property or
assets subject thereto and such Lien is created prior to, at the time of or
within 12 months after the later of the acquisition, the completion of
construction or the commencement of full operation of such property or (2) to
refinance any Indebtedness previously so secured, (b) the principal amount of
the Indebtedness secured by such Lien does not exceed 100% of such cost and (c)
any such Lien shall not extend to or cover any property or assets other than
such item of property or assets and any improvements on such item; (vii) leases
or subleases granted to others that do not materially interfere with the
ordinary course of business of the Company or any of its Subsidiaries; (viii)
Liens encumbering property or assets under construction arising from obligations
of the Company or any of its Subsidiaries to make progress or partial payments
relating to such property or assets, (ix) any interest or title of a lessor in
the property subject to any Capitalized Lease; provided that any sale-leaseback
transaction related thereto complies with the "Limitation on Sale-Leaseback
Transactions" covenant described above; (x) Liens arising from filing Uniform
Commercial Code financing statements, chattel mortgages or similar documents
regarding leases or by vendors in respect of inventory on which "advance money"
has been paid; (xi) Liens on property of, or on shares of stock or Indebtedness
of, any corporation existing at the time such corporation becomes, or becomes a
part of, any Restricted Subsidiary; (xii) Liens in favor of the Company or any
Restricted Subsidiary; (xiii) Liens on any facilities, equipment or other
property of the Company or any Subsidiary of the Company in favor of the United
States of America or any State, or any department, agency, instrumentality or
political subdivision thereof (including the Commonwealth of Puerto Rico and the
United States Virgin Islands), in connection with the issuance of industrial
revenue bonds or on any equipment or other property designed primarily for the
purpose of air, or water pollution control; provided, that any such Lien on such
facilities, equipment or other property shall not apply to any other assets of
the Company or such Subsidiary of the Company; (xiv) Liens arising from the
rendering of a final judgment or order against the Company or any Subsidiary of
the Company that does not give rise to an Event of Default; (xv) Liens securing
reimbursement obligations with respect to letters of credit that encumber
documents and other
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property relating to such letters of credit and the products and proceeds
thereof; (xvi) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods; (xvii) Liens encumbering customary initial deposits and
margin deposits, and other Liens that are either within the general parameters
customary in the industry and incurred in the ordinary course of business or
otherwise permitted under the terms of the Old Bank Credit Agreement, in each
case securing Indebtedness under Interest Rate Agreements and Currency
Agreements and forward contracts, options, futures contracts, futures options or
similar agreements or arrangements designed to protect the Company or any of its
Subsidiaries from fluctuations in the price of commodities; (xviii) Liens
arising out of conditional sale, title retention, consignment or similar
arrangements for the sale of goods entered into by the Company or any or its
Subsidiaries in the ordinary course of business in accordance with the past
practices of the Company and its Subsidiaries prior to July 28, 1993; (xix)
Liens on or sales of receivables; (xx) Liens on assets of Restricted
Subsidiaries permitted by the Old Bank Credit Agreement as in effect on July 28,
1993 and other such Liens that are not materially more restrictive (in terms of,
without limitation, the amount secured by such Lien and the scope of such Lien)
than such Liens permitted by the Old Bank Credit Agreement; and (xxi) Liens on
assets of Restricted Subsidiaries securing Indebtedness and other obligations
permitted under clause (xiii) in part (a) of the "Limitation on Indebtedness"
covenant.
"Person" means an individual, a corporation, a partnership, an association,
a trust or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of preferred or reference stock of such Person which is
outstanding or issued on or after July 28, 1993, including, without limitation,
all series and classes of such preferred or preference stock.
"Redeemable Stock" means any class or series of Capital Stock of any Person
that by its terms or otherwise is (i) required to be redeemed prior to the
Stated Maturity of the Initial Notes, (ii) redeemable at the option of the
holder of such class or series of Capital Stock at any time prior to the Stated
Maturity of the Notes or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require the Company to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or a "change of
control" occurring prior to the Stated Maturity of the Notes shall not
constitute Redeemable Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the holders
of such Capital Stock than the provisions contained in the "Limitation on Asset
Sales" and "Repurchase of Notes upon Change of Control" covenants described
above and such Capital Stock specifically provides that the Company will not
repurchase or redeem any such Capital Stock pursuant to such provisions prior to
the Company's repurchase of Notes required to be repurchased by the Company
under the "Limitation on Asset Sales" or "Repurchase of Notes upon Change of
Control" covenants described above.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Significant Subsidiary" means, at any date of determination, any
Subsidiary of the Company that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company or (ii) as of the end of such fiscal year,
was the owner of more than 10% of the consolidated assets of the Company, all as
set forth on the most recently available consolidated financial statements of
the Company for such fiscal year.
"Stated Maturity" means, with respect to any debt security or any
installment of interest thereon, the date specified in such debt security as the
fixed date on which any principal of such debt security or any such installment
of interest is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the outstanding
voting Stock is owned, directly or indirectly, by the Company or by one or more
other Subsidiaries of the Company, or by such Person and one or more other
Subsidiaries of such
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Person; provided that, except as the term "Subsidiary" is used in the definition
of "Unrestricted Subsidiary" described above, an Unrestricted Subsidiary shall
not be deemed to be a Subsidiary of the Company.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Company or
any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary
to be so designated; provided that either (a) the Subsidiary to be so designated
has total assets of $1,000 or less or (b) if such Subsidiary has assets greater
than $1,000, that such designation would be permitted under the "Limitation on
Restricted Payments" covenant described above. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the
Company; provided that immediately after giving effect to such designation (1)
the Company could Incur $1.00 of additional Indebtedness under the clause (i) in
part (a) of the "Limitation on Indebtedness" covenant described above and (2) no
Event of Default, or event or condition that through the giving of notice or the
lapse of time or both would become an Event of Default, shall have occurred and
be continuing. Any such designation by the Board of Directors shall be evidenced
to the Trustee by filing promptly with the Trustee a copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation compiled with the foregoing provisions.
"Voting Stock" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors
of such Person.
"Wholly Owned Subsidiary" means, with respect to any Person, any Subsidiary
of such Person if all of the Common Stock or other similar equity ownership
interests (but not including Preferred Stock) in such Subsidiary (other than any
director's qualifying shares or Investments by foreign nationals mandated by
applicable law) is owned directly or indirectly by such Person.
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DESCRIPTION OF NEW BANK CREDIT AGREEMENT
The following summary of the New Bank Credit Agreement does not purport to
be complete and is qualified in its entirety by reference to the New Bank Credit
Agreement a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus is a part.
As part of the Refinancing Plan, Pueblo amended and restated its Old Bank
Credit Agreement. The New Bank Credit Agreement, under which The Bank of Nova
Scotia and NationsBank, N.A. (South) are acting as agents for the lending
institutions thereunder, provides for borrowings in the aggregate principal
amount of up to $65.0 million. The revolving facility will terminate on February
1, 2003.
The obligations of Pueblo under the New Bank Credit Agreement are
guaranteed by the Company and secured by a pledge of the assets of the Company's
subsidiaries and by the capital stock of, and intercompany notes issued by, the
Company's subsidiaries. Subject to certain exceptions, the New Bank Credit
Agreement requires that (i) 100% of the net cash proceeds in excess of
$1,000,000 received from the sale of assets (excluding two properties in Florida
to be transferred to a related party pursuant to the Refinancing Plan) by the
Company or its subsidiaries which have not been reinvested within one year, (ii)
100% of the net cash proceeds received from the issuance of certain debt by the
Company or its subsidiaries and (iii) 60% of the net cash proceeds received from
the issuance of equity by the Company be applied to reduce outstanding loans and
commitments under the facilities. Amounts outstanding under the New Bank Credit
Agreement will bear interest at a rate based, at Pueblo's option, upon either
(i) the Base Rate (as defined in the New Bank Credit Agreement) plus an interest
margin of 1.25%, or (ii) LIBOR (the London Interbank Offered Rate) plus an
interest margin of 2.25%. These interest margins will be subject to decrease
based upon the Company's achievement of certain ratios of consolidated
indebtedness to EBITDA.
The New Bank Credit Agreement contains a number of financial, affirmative
and negative covenants that regulate Pueblo's operations. Financial covenants
require maintenance of ratios of total funded debt and senior debt to EBITDA,
and minimum interest coverage. Negative covenants restrict, among other things,
the incurrence of debt, the existence of liens, transactions with affiliates,
loans, advances and investments by the Company, payment of dividends and other
distributions to shareholders, dispositions of assets, mergers, consolidations
and dissolutions, contingent liabilities, changes in business and acquisitions.
The New Bank Credit Agreement also contains an exception to the restriction on
the payment of dividends which provides that so long as no Default or Event of
Default exists, or would exist as a result thereof, Pueblo is permitted to pay
cash dividends to the Company in an aggregate amount necessary to pay interest
on the Notes then due and payable in accordance with the terms thereof.
INITIAL NOTES REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement the Company has agreed, for
the benefit of the holders of the Initial Notes, at the expense of the Company,
to (i) file on or prior to the 30th calendar day following the Closing Date a
registration statement (the "Exchange Offer Registration Statement") with the
Commission with respect to a registered offer (the "Exchange Offer") to exchange
the Initial Notes for the Exchange Notes, to be issued under the Indenture in
the same aggregate principal amount as and with terms that will be identical in
all respects to the Initial Notes (except for certain transfer restrictions,
registration rights and penalty interest provisions and (ii) use its best
efforts to cause the Exchange Offer Registration Statement to be declared
effective under the Securities Act on or prior to the 90th calendar day
following the Closing Date and (iii) use its best efforts to consummate the
Exchange Offer on or prior to the 120th calendar day following the Closing Date.
The Company will keep the Exchange Offer open for not less than 30 days and not
more than 45 days (or longer if required by applicable law) after the date
notice of the Exchange Offer is mailed to the holders of the Initial Notes. For
each Initial Note tendered to the Company pursuant to the Exchange Offer and not
validly withdrawn by the holder thereof, the holder of such Initial Note will
receive an Exchange Note having a principal amount equal to the principal amount
of such surrendered Initial Note.
The Company is making the Exchange Offer in reliance on the position of the
staff of the Commission as set forth in certain no-action letters addressed to
other parties in other transactions. However, the Company
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has not sought its own no-action letter and there can be no assurance that the
staff of the Commission would make a similar determination with respect to the
Exchange Offer in such other circumstances. Based upon these interpretations by
the staff of the Commission and subject to the immediately following sentence,
the Company believes that the Exchange Notes may be offered for resale, resold
and otherwise transferred by the holders thereof without further compliance with
the registration and prospectus delivery provisions of the Securities Act.
However, any holder of Initial Notes who is an "affiliate" of the Company or has
any arrangement or understanding with any person to participate in the
distribution of the Exchange Notes (i) will not be able to rely on the
interpretation by the staff of the Commission set forth in the above-mentioned
no-action letters, (ii) will not be able to tender its Initial Notes in the
Exchange Offer and (iii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or
transfer of the Initial Notes unless such sale or transfer is made pursuant to
an exemption from such requirements.
Each holder of Initial Notes who wishes to exchange Initial Notes for
Exchange Notes will be required to represent that (i) it is not an affiliate of
the Company, (ii) any Exchange Notes to be received by it were acquired in the
ordinary course of its business and (iii) at the time of commencement of the
Exchange Offer, it has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes. In addition, in connection with any resales of Exchange
Notes, any broker-dealer who acquired the Initial Notes for its own account as a
result of market-making activities or other trading activities must deliver a
prospectus meeting the requirements of the Securities Act. The Commission has
taken the position that broker-dealers may fulfill their prospectus delivery
requirements with respect to the Exchange Notes (other than a resale of an
unsold allotment from the original sale of the Notes) with the prospectus
contained in the Exchange Offer Registration Statement. Under the Registration
Rights Agreement, the Company is required to allow broker-dealers to use the
prospectus contained in the Exchange Offer Registration Statement in connection
with the resale of such Exchange Notes.
In the event that any changes in law or applicable interpretations of the
staff of the Commission do not permit the Company to effect the Exchange Offer,
or if for any reason the Exchange Offer is not consummated within 120 days of
the Closing Date or in certain other circumstances, the Company will, at its
expense, (i) as promptly as practicable, and in any event on or prior to 30 days
after such filing obligation arises, file with the Commission a Shelf
Registration Statement covering resales of the Initial Notes, (ii) use its best
efforts to cause the Shelf Registration Statement to be declared effective under
the Securities Act on or prior to 45 days after such filing occurs and (iii)
keep effective the Shelf Registration Statement until two years after its
effective date (or such shorter period that will terminate when all the Initial
Notes covered thereby have been sold pursuant thereto or in certain other
circumstances). The Company will, in the event of the filing of a Shelf
Registration Statement, provide to each holder of the Initial Notes covered by
the Shelf Registration Statement copies of the prospectus that is a part of the
Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement for the Initial Notes has become effective and take
certain other actions as are required to permit unrestricted resales of the
Initial Notes. A holder of Initial Notes that sells such Initial Notes pursuant
to the Shelf Registration Statement generally will be required to be named as a
selling securityholder in the related prospectus and to deliver a prospectus to
the purchaser, will be subject to certain of the civil liability provisions
under the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such
Holder (including certain indemnification obligations). In addition, each holder
of the Initial Notes will be required to deliver certain information to be used
in connection with the Shelf Registration Statement in order to have its Initial
Notes included in the Shelf Registration Statement.
In the event that either (a) the Exchange Offer Registration Statement is
not filed with the Commission on or prior to the 30th calendar day following the
Closing Date or (b) the Exchange Offer is not consummated or a Shelf
Registration Statement is not declared effective on or prior to the 120th
calendar day following the Closing Date, the interest rate borne by the Initial
Notes will be increased by 0.25 percent per annum for the first 30 days
following the 30-day period referred to in clause (a) above or the first 90 days
following the 120-day period referred to in clause (b) above. Such interest will
increase by an additional 0.25 percent per annum at the beginning of each
subsequent 30-day period in the case of clause (a) above or 90-day period in
69
<PAGE> 75
the case of clause (b) above; provided, however, that in no event will the
interest rate borne by the Initial Notes be increased by more than 1.5 percent.
Upon the filing of the Exchange Offer Registration Statement, the consummation
of the Exchange Offer or the effectiveness of a Shelf Registration Statement, as
the case may be, the interest rate borne by the Initial Notes from the date of
such filing, consummation or effectiveness, as the case may be, will be reduced
to the original interest rate set forth on the cover of this Prospectus;
provided, however, that, if after any such reduction in interest rate, a
different event specified in clause (a) or (b) above occurs, the interest rate
may again be increased pursuant to the foregoing provisions.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is qualified in its entirety by
reference to the Registration Rights Agreement, a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
TAXATION
The following is a general summary of certain material U.S. federal income
tax consequences of the purchase, ownership and disposition of the Notes,
applicable to holders of Notes who purchased the Notes pursuant to the Offering
at the price at which the Notes were sold pursuant to the Offering. The summary
is based on U.S. federal income tax laws, regulations, rulings and decisions now
in effect, all of which are subject to change, possibly with retroactive effect.
This summary also is based on the information included in this Prospectus and
the related documents and on certain representations from the Company and the
Initial Purchasers as to factual matters. This summary is only for United States
Holders (as defined below) who hold the Notes as capital assets and not for sale
to customers in the ordinary course of a trade or business. This discussion does
not cover all aspects of U.S. federal taxation that may be relevant to, or the
actual tax effect that any of the matters described herein will have on,
particular holders and does not address state, local and foreign tax
consequences.
The Company has not sought and will not seek any rulings from the Internal
Revenue Service (the "IRS") with respect to the positions of the Company
discussed below. There can be no assurance that the IRS will not take a
different position concerning the tax consequences of the purchase, holding or
disposition of the Notes or that any such position would not be sustained by a
court.
The tax treatment of a holder of Notes may vary depending on his particular
situation or status. Certain holders (including insurance companies, tax-exempt
organizations, financial institutions, dealers in securities or foreign
currency, persons that hold the Notes as a position in a "straddle" or as part
of a "hedging" or "conversion" transaction for tax purposes, persons that have a
"functional currency" other than the U.S. dollar, investors in pass-through
entities and holders who are not United States Holders) may be subject to
special rules not discussed below. HOLDERS OF NOTES ARE URGED TO CONSULT THEIR
TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF
PURCHASING THE NOTES AND OF THE CONTINUED HOLDING AND DISPOSITION OF THE NOTES.
As used herein, a "United States Holder" is (i) an individual citizen or
resident of the United States, (ii) a corporation or partnership created or
organized in or under the laws of the United States or of any political
subdivision thereof, or (iii) an estate or trust the income of which is
includible in its gross income for U.S. federal income tax purposes without
regard to its source.
TAXATION OF THE NOTES
Original Issue Discount
The Notes were issued with OID for U.S. federal income tax purposes. United
States Holders of debt instruments must include OID in ordinary gross income as
it accrues, under the constant yield method, regardless of their regular method
of accounting. OID equals the amount by which the stated redemption price at
maturity ("SRPM") of a debt instrument exceeds the instrument's "issue price,"
provided such excess exceeds a statutory de minimis amount. The SRPM of a debt
instrument includes all payments of principal and interest on the instrument
other than qualified stated interest ("QSI"), which is stated interest
70
<PAGE> 76
that is unconditionally payable in cash or other property (other than debt
instruments of the issuer) at least annually at a single fixed rate (or certain
variable rates). All interest payments on the Notes will be payments of QSI. The
issue price of the Notes will equal the first price at which a substantial
amount of Notes is sold for cash (other than to bond houses, brokers or similar
persons or organizations acting in the capacity of underwriters, placement
agents or wholesalers).
Each holder of Notes that are issued with OID generally will be required to
include in gross income an amount equal to the sum of the daily portions of OID
on the Notes for all days during the taxable year in which such holder holds the
Notes. The daily portions of OID are determined by allocating to each day during
an accrual period a ratable portion of OID attributable to that accrual period.
The amount of OID attributable to each full accrual period is equal to the
product of the adjusted issue price ("AIP") of the Notes at the beginning of the
accrual period and the yield to maturity of the Notes (determined on the basis
of compounding at the close of each accrual period and properly adjusted for the
length of the accrual period). Except for the first accrual period which begins
on the issue date and ends on August 1, 1997, the Notes have six month accrual
periods that end on August 1 and February 1 of each year for so long as the
Notes are outstanding. The AIP of the Notes at the beginning of an accrual
period is the original issue price of the Notes plus the aggregate amount of OID
that has accrued in all prior accrual periods. The yield to maturity is the
discount rate that, when used in computing the present value of all principal
and interest payments to be made on the Notes, produces an amount equal to their
issue price. A holder increases its basis in the Notes by the amount of any OID
included in income.
If a holder purchases Notes at a premium (i.e., for an amount greater than
the SRPM), the holder does not include any OID in gross income. If a holder
purchases Notes for an amount less than the SRPM but greater than the AIP, the
holder is required to include the daily portion of OID in income like an
original holder, but the daily portion of OID which the holder must include in
income will be reduced by an amount equal to the daily portion multiplied by a
fraction, the numerator of which is equal to the excess of the holder's cost of
the Notes over the holder's adjusted basis in the Notes and the denominator of
which is equal to the excess of the sum of all payments (other than QSI) on the
Notes after the date such Notes are purchased by the holder over the AIP of such
Notes.
Information with respect to OID, if any, accruing during the calendar year,
as well as interest paid during that year is required to be furnished to the
Internal Revenue Service and to holders of Notes that are not exempt from the
reporting requirements. This information will be based upon the adjusted issue
price of the debt instrument as if the holder were the original holder of the
debt instrument. Accordingly, a holder who purchases the Notes for an amount
other than the adjusted issue price or purchases the Notes on a date other than
the beginning of an accrual period will be required to determine the amount of
OID, if any, required to be included in gross income for U.S. federal income tax
purposes. A holder's aggregate includible income may vary, depending upon the
amount paid for the Notes.
Market Discount
The Notes will have market discount to the extent they are acquired for an
amount less than their adjusted issue price as of the purchase date, unless such
market discount is less than a specified de minimis amount. If a holder of Notes
with market discount recognizes gain on the sale, exchange or other disposition
of the Notes, all or a portion of that gain will be taxed to the holder as
ordinary interest income to the extent of any accrued market discount. In
addition, if the holder of Notes receives a partial principal payment with
respect to the Notes, all or a portion of that partial principal payment will be
treated as ordinary interest income to the extent of accrued market discount.
Market discount generally accrues under a ratable method determined by the
product of total market discount and the ratio of days held to the total days
after the date of acquisition up to (and including) the date of maturity of the
Notes. In lieu of the ratable method of accrual, a holder may elect to compute
accrued market discount on the basis of a constant interest rate, i.e., taking
into account the compounding of interest. Further, a purchaser of Notes with
market discount may be required to defer recognition of all or a portion of
interest expense attributable to any indebtedness incurred or continued to
purchase or carry the Notes. The
71
<PAGE> 77
amount of this deferred interest expense would not exceed the market discount
accrued for the year and generally is allowed as a deduction not later than the
year in which the related market discount income is recognized.
A holder of Notes with market discount may elect to include currently
market discount in gross income as the discount accrues. This current inclusion
election applies to all other debt instruments with market discount acquired on
or after the first day of the first taxable year to which the election applies
and may not be revoked without the consent of the IRS. If such an election is
made, the foregoing rules with respect to the recognition of ordinary income on
sales and other dispositions of the Notes with market discount and deferral of
interest on related indebtedness will not apply.
Bond Premium
If a holder acquires the Notes at a premium (i.e., for an amount greater
than the SRPM), the holder does not include OID in gross income and the holder
may amortize such premium as an offset against interest payments made on the
Notes. The amount of amortizable bond premium is generally the excess of the
amount paid by the holder for the Notes over the SRPM of the Notes. The amount
of premium that is amortizable as an offset against each interest payment is
determined using a constant yield method. A holder may amortize premium only if
the holder makes (or has made) a timely election. Such election, if made, would
apply to all debt instruments held at the beginning of the first tax year to
which the election applies or subsequently acquired by the electing holder and
could not be revoked without the consent of the IRS.
Interest Accrual Election
Any holder of Notes may elect to treat all interest on the Notes as OID and
calculate the amount includible in gross income under the constant yield method.
For purposes of this election, interest includes stated interest, acquisition
discount, OID, de minimis OID, market discount, de minimis market discount and
unstated interest, all as adjusted by any amortizable bond premium or
acquisition premium. If a holder makes this election for Notes with market
discount or amortizable bond premium, the election is treated as an election
under the market discount or amortizable bond premium provisions, described
above, and the electing holder will be required to include market discount in
income currently or amortize bond premium for all of its other debt instruments
with market discount or amortizable bond premium, respectively, acquired during
such tax year or in any subsequent tax year. The election is to be made for the
taxable year in which the holder acquired the Notes and may not be revoked
without the consent of the IRS. A holder of Notes should consult with his or her
own tax advisor about this election.
Sale or Exchange
In general, a holder of Notes will recognize gain or loss upon the sale,
exchange, redemption, retirement or other disposition of the Notes measured by
the difference between the amount realized on the disposition and the holder's
adjusted basis in the Notes. In general, a holder of a Note will have an
adjusted tax basis for the Note equal to the Note's cost, increased by the
amount of OID previously included in gross income by the holder and reduced by
prior payments of principal or, to the extent previously included in income and
reflected in the holder's adjusted tax basis, interest made to the holder in
respect of such Note. Subject to the market discount rules discussed above, such
gain or loss generally will be capital gain or loss and will be long-term if the
holder holds the Notes for more than one year prior to disposition. Capital
losses are subject to limitations on deductibility for U.S. federal income tax
purposes.
Exchange Offer
An exchange of Notes for Exchange Notes pursuant to the Exchange Offer will
not be a taxable event for U.S. federal income tax purposes. Receipt of Exchange
Notes will be treated as a continuation of the original investment in the Notes.
Similarly, there would be no U.S. federal income tax consequences to a holder of
Notes that does not participate in the Exchange Offer. In the event that the
Company fails to register the Notes pursuant to an effective registration
statement as described under "Initial Notes Registration Rights,"
72
<PAGE> 78
additional interest payable on the Notes in the manner described therein will be
includible in the gross income of United States Holders.
Backup Withholding
A holder may be subject to backup withholding at a rate of 31% with respect
to certain "reportable payments," which include payments of interest and any
call premium, and, under certain circumstances, principal payments, on the
Notes. These backup withholding rules apply if such holder, among other things,
(i) fails to furnish a social security number or other taxpayer identification
number ("TIN") certified under penalties of perjury to the person subject to the
requirement to backup withhold, (ii) furnishes an incorrect TIN to such person,
(iii) fails to report properly interest or dividends, or (iv) under certain
circumstances, fails to provide to such person a certified statement, signed
under penalty of perjury, that the TIN furnished is correct and that such holder
is not subject to backup withholding. A holder that does not provide the Company
with its correct TIN may be subject to penalties imposed by the IRS. Backup
withholding will not apply, however, with respect to certain exempt recipients,
such as corporations and tax-exempt organizations, and certain foreign persons.
However, the Company will withhold applicable amounts from such a recipient
unless the recipient has established to the satisfaction of the Company that it
is exempt from backup withholding.
If backup withholding applies, the Company is required to withhold 31% from
reportable payments. The amount withheld is not an additional tax but may be
credited against the holder's income tax liability.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account in
connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Initial Notes if such Initial Notes were acquired as a result of
market-making activities or other trading activities. The Company intends, for a
period of 180 days after the Expiration Date, to make this Prospectus, as
amended or supplemented, available to any broker-dealer that requests such
documents in the Letter of Transmittal, for use in connection with any such
resale.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account in connection with the Exchange Offer may be sold from time to time in
one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
or resale, at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account in connection with the Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act, and any
profit on any such resale of Exchange Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Initial Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act, as set
forth in the Registration Rights Agreement.
73
<PAGE> 79
LEGAL MATTERS
The validity of the Notes has been passed upon for the Company by Milbank,
Tweed, Hadley & McCloy, New York, New York.
EXPERTS
The consolidated financial statements included in this Prospectus and the
related consolidated financial statement schedules included elsewhere in the
Registration Statement, of which this Prospectus forms a part, have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the Registration Statement (which reports
express an unqualified opinion and include an explanatory paragraph referring to
the Company's adoption of SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of "), and have been
so included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.
74
<PAGE> 80
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report........................................................... F-2
Consolidated Balance Sheets at January 25, 1997 and January 27, 1996................... F-3
Consolidated Statements of Operations for the three fiscal years ended January 25,
1997................................................................................. F-5
Consolidated Statements of Cash Flows for the three fiscal years ended January 25,
1997................................................................................. F-6
Consolidated Statements of Stockholder's Equity for the three fiscal years ended
January 25, 1997..................................................................... F-7
Notes to Consolidated Financial Statements............................................. F-8
</TABLE>
F-1
<PAGE> 81
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
Pueblo Xtra International, Inc.
San Juan, Puerto Rico
Pompano Beach, Florida
We have audited the accompanying consolidated balance sheets of Pueblo Xtra
International, Inc. and Subsidiaries as of January 25, 1997 and January 27,
1996, and the related consolidated statements of operations, cash flows and
stockholder's equity for each of the three years in the period ended January 25,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Pueblo Xtra International, Inc.
and Subsidiaries as of January 25, 1997 and January 27, 1996 and the results of
their operations and their cash flows for each of the three years in the period
ended January 25, 1997 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, effective
January 28, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
April 3, 1997
F-2
<PAGE> 82
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents...................................................................... $ 12,148 $ 6,998
Marketable securities (market value of $89 at January 25, 1997 and $888 at January 27, 1996)... 89 888
Accounts receivable............................................................................ 4,443 10,071
Inventories.................................................................................... 59,503 67,237
Assets held for sale........................................................................... 13,804 26,000
Prepaid expenses............................................................................... 10,428 10,670
Deferred income taxes.......................................................................... 3,316 9,215
-------- --------
TOTAL CURRENT ASSETS..................................................................... 103,731 131,079
-------- --------
PROPERTY AND EQUIPMENT
Land and improvements.......................................................................... 18,278 18,116
Buildings and improvements..................................................................... 62,388 60,766
Furniture, fixtures and equipment.............................................................. 98,138 95,591
Leasehold improvements......................................................................... 35,408 31,617
Construction in progress....................................................................... 4,253 4,139
-------- --------
218,465 210,229
Less accumulated depreciation and amortization................................................. 77,289 55,505
-------- --------
141,176 154,724
Property under capital leases, net............................................................. 9,739 11,559
-------- --------
TOTAL PROPERTY AND EQUIPMENT, NET........................................................ 150,915 166,283
GOODWILL, net of accumulated amortization of $18,050 at January 25, 1997 and $13,018 at January
27, 1996....................................................................................... 183,668 188,700
DEFERRED INCOME TAXES............................................................................ 12,923 10,272
TRADENAMES....................................................................................... 31,570 32,436
DEFERRED CHARGES AND OTHER ASSETS................................................................ 39,933 44,613
-------- --------
TOTAL ASSETS............................................................................. $ 522,740 $ 573,383
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 83
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CURRENT LIABILITIES
Accounts payable............................................................................... 74,951 65,112
Accrued expenses............................................................................... 36,054 52,610
Salaries, wages and benefits payable........................................................... 11,563 14,315
Short-term borrowing........................................................................... 7,000 --
Notes payable to a related party............................................................... 10,000 --
Income taxes payable........................................................................... 110 94
Current installments of long-term debt......................................................... 18,250 29,214
Current obligations under capital leases....................................................... 617 859
Deferred income taxes.......................................................................... 1,403 --
-------- --------
TOTAL CURRENT LIABILITIES................................................................ 159,948 162,204
LONG-TERM DEBT, net of current portion........................................................... $ 71,227 $ 89,477
NOTES PAYABLE.................................................................................... 180,000 180,000
CAPITAL LEASE OBLIGATIONS, net of current portion................................................ 8,110 8,947
RESERVE FOR SELF-INSURANCE CLAIMS................................................................ 12,201 12,862
DEFERRED INCOME TAXES............................................................................ 22,921 35,335
OTHER LIABILITIES AND DEFERRED CREDITS........................................................... 35,352 39,659
-------- --------
TOTAL LIABILITIES............................................................................ 489,759 528,484
-------- --------
COMMITMENTS AND CONTINGENCIES.................................................................... -- --
STOCKHOLDER'S EQUITY Common stock, $.10 par value; 200 shares authorized and issued.............. -- --
Additional paid-in capital..................................................................... 91,500 86,500
Accumulated deficit............................................................................ (58,519) (41,601)
-------- --------
TOTAL STOCKHOLDER'S EQUITY............................................................... 32,981 44,899
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY............................................... $ 522,740 $ 573,383
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 84
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales.............................................. $1,020,056 $1,145,370 $1,166,955
Cost of goods sold..................................... 760,329 848,490 871,136
---------- ---------- ----------
GROSS PROFIT......................................... 259,727 296,880 295,819
---------- ---------- ----------
OPERATING EXPENSES
Selling, general and administrative expenses........... 213,485 240,219 229,197
Depreciation and amortization.......................... 41,128 43,669 43,865
Unusual charges........................................ 4,160 32,161 --
---------- ---------- ----------
OPERATING PROFIT (LOSS).............................. 954 (19,169) 22,757
Sundry, net............................................ 122 (52) (35)
---------- ---------- ----------
INCOME (LOSS) BEFORE INTEREST, INCOME TAXES AND
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE......................................... 1,076 (19,221) 22,722
Interest expense on debt............................... (29,306) (32,002) (30,358)
Interest expense on capital lease obligations.......... (1,152) (2,219) (2,451)
Interest and investment income, net.................... 276 875 656
---------- ---------- ----------
LOSS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE.................... (29,106) (52,567) (9,431)
Income tax benefit................................... 9,535 20,210 4,790
---------- ---------- ----------
LOSS BEFORE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE............................ (19,571) $ (32,357) $ (4,641)
Cumulative effect of a change in accounting principle,
net of deferred income taxes of $1,496............... 2,653 -- --
---------- ---------- ----------
NET LOSS............................................. $ (16,918) $ (32,357) $ (4,641)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 85
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................. $(16,918) $(32,357) $ (4,641)
Adjustments to reconcile net loss to net cash provided by
operating activities, net of effects of disposal of
Florida retail operations:
Cumulative effect of a change in accounting
principle........................................... (2,653) -- --
Unusual charges....................................... 4,160 31,889 --
Depreciation and amortization of property and
equipment........................................... 25,528 29,818 29,278
Amortization of intangible and other assets........... 15,600 14,181 14,587
Deferred income taxes................................. (9,259) (19,145) (7,639)
Loss on disposal of property and equipment, net....... 2,395 4,794 783
Decrease (increase) in deferred charges, goodwill, and
other assets........................................ 2,401 2,755 2,101
Increase (decrease) in reserve for self-insurance
claims.............................................. 896 (3,611) (1,130)
Increase (decrease) in other liabilities and deferred
credits............................................. 161 (3,540) (366)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable.......... 2,621 (3,406) 223
Decrease (increase) in inventories.................. (3,995) (4,267) 538
Decrease (increase) in prepaid expenses............. 278 1,212 (411)
Increase (decrease) in accounts payable and accrued
expenses......................................... 6,427 7,887 (4,850)
Increase (decrease) in income taxes payable......... (20) (2,145) (680)
-------- -------- --------
27,622 24,065 27,793
Decrease attributable to disposal of Florida retail
operations....................................... (12,810) -- --
-------- -------- --------
Net cash provided by operating activities........ 14,812 24,065 27,793
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment...................... (14,455) (20,769) (14,649)
Proceeds from disposal of property and equipment......... 59 502 694
Purchase of leasehold interests.......................... -- (1,565) (1,752)
Purchases of marketable securities....................... (223) -- --
Proceeds from sales of marketable securities............. 1,415 -- --
Proceeds from disposal of Florida retail operations...... 11,840 -- --
Issuance of note receivable from a related party......... -- -- (10,000)
Proceeds from note receivable from a related party....... -- -- 10,000
Net cash used in investing activities............ (1,364) (21,832) (15,707)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in note payable to bank syndicate........... 7,000 -- 8,000
Net decrease in note payable to bank syndicate........... -- -- (8,000)
Principal payments on long-term debt..................... (29,214) (9,614) (15,582)
Principal payments on capital lease obligations.......... (1,084) (1,301) (1,295)
Proceeds from capital contribution....................... 5,000 -- 15,000
Proceeds from notes payable to a related party........... 10,000 -- --
-------- -------- --------
Net cash used in financing activities............ (8,298) (10,915) (1,877)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 5,150 (8,682) 10,209
Cash and cash equivalents at beginning of period........... 6,998 15,680 5,471
-------- -------- --------
Cash and cash equivalents at end of period................. $ 12,148 $ 6,998 $ 15,680
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 86
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDER'S
STOCK CAPITAL DEFICIT EQUITY
------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at January 29, 1994................... $ -- $ 71,500 $ (4,603) $ 66,897
Capital contribution........................ -- 15,000 -- 15,000
Net loss for the year....................... -- -- (4,641) (4,641)
------- ------- -------- --------
Balance at January 28, 1995................... $ -- $ 86,500 $ (9,244) $ 77,256
Net loss for the year....................... -- -- (32,357) (32,357)
------- ------- -------- --------
Balance at January 27, 1996................... $ -- $ 86,500 $ (41,601) $ 44,899
Capital contribution........................ -- 5,000 -- 5,000
Net loss for the year....................... -- -- (16,918) (16,918)
------- ------- -------- --------
Balance at January 25, 1997................... $ -- $ 91,500 $ (58,519) $ 32,981
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Pueblo Xtra
International, Inc. and its wholly-owned subsidiaries ("The Company"). The
Company operated retail supermarkets and video rental locations in Puerto Rico
and the U.S. Virgin Islands during fiscal 1997. Intercompany accounts and
transactions are eliminated in consolidation.
The Company operates and reports financial results on a fiscal year of 52
or 53 weeks ending on the last Saturday in January. Accordingly, fiscal year
1997 ended on January 25, 1997, fiscal 1996 ended on January 27, 1996, and
fiscal 1995 ended on January 28, 1995. All fiscal years comprised 52 weeks.
Cash and Cash Equivalents
Highly liquid investments purchased with a maturity of three months or less
are considered cash equivalents.
Marketable Securities
Marketable securities consist of U.S. Government or agency issues with the
majority of the maturities occurring within the next 12 months. These
investments in debt securities are classified as held-to-maturity and measured
at amortized cost as it is both the Company's positive intent and ability to
hold the investments to maturity.
Inventories
Inventories held for sale are stated at the lower of cost or market. The
cost of inventories held for sale is determined, depending on the nature of the
product, either by the last-in, first-out (LIFO) method or by the first-in,
first-out (FIFO) method. Videocassette rental inventories are recorded at cost,
net of accumulated amortization. Videocassettes held for rental are amortized
over 12 months on a straight-line basis.
Property and Equipment
Property and equipment, including expenditures for remodeling and
improvements, are carried at cost. Routine maintenance, repairs and minor
betterments are charged to operations as incurred. Depreciation and amortization
are computed on a straight-line basis over the estimated useful lives of the
assets or, in relation to leasehold improvements and property under capital
leases, over the lesser of the asset's useful life or the lease term, not to
exceed 20 years. Estimated useful lives are 20 years for buildings and
improvements, 5 to 12 years for furniture, fixtures and equipment, 4 years for
automotive equipment and 3 years for computer hardware and software.
Upon the sale, retirement or other disposition of assets, the related cost
and accumulated depreciation or amortization are eliminated from the accounts.
Any resulting gains or losses from disposals are included in the consolidated
statements of operations.
Goodwill and Other Intangibles
Goodwill represents the excess of cost over the estimated fair value of the
net tangible and other intangible assets acquired in connection with the
transaction described in Note (3) -- Acquisitions. Goodwill and other
intangibles are being amortized using the straight-line method over periods not
exceeding 40 years. The Company periodically evaluates the carrying amount of
goodwill and other intangibles to recognize and measure the possible impairment
of these assets. Based on the recoverability from cash flows method (which
includes evaluating the probability that estimated undiscounted cash flows from
related operations will be less
F-8
<PAGE> 88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
than the carrying amount of goodwill and other long-lived assets), the Company
believes there is no impairment to goodwill and other intangibles.
Self-Insurance
The Company's general liability and certain of its workers compensation
insurance programs are self-insured. The reserve for self-insurance claims is
based upon an annual review by the Company and its independent actuary of claims
filed and claims incurred but not yet reported. Due to inherent uncertainties in
the estimation process, it is at least reasonably possible that the Company's
estimate of the reserve for self-insurance claims could change in the near term.
The liability for self-insurance is not discounted. Individual self-insured
losses are limited to $250,000 per occurrence for general liability and certain
workers compensation. The Company maintains insurance coverage for claims in
excess of $250,000. The current portion of the reserve, representing the amounts
expected to be paid in the next fiscal year, were $6.7 million and $7.7 million
at January 25, 1997 and January 27, 1996, respectively, and are included in the
consolidated balance sheets as accrued expenses.
Pre-Opening Expenses
Store pre-opening expenses are charged to operations in the month the
stores are opened.
Advertising Expenses
Advertising expenses are charged to operations as they are incurred. During
fiscal 1997, fiscal 1996, and fiscal 1995, advertising expenses were $11.0
million, $11.4 million, and $10.8 million, respectively.
Interest Rate Instruments
The Company is a party to an interest rate swap agreement and interest rate
cap agreements to limit its exposure to increases in market interest rates.
The interest rate swap agreement (the "Swap") involves the exchange of
fixed and floating rate interest payment obligations over the life of the
agreement without exchange of the underlying notional principal amount. The
differential to be paid or received is recognized as an adjustment to the
reserve established in purchase accounting as a result of the transaction
described in Note (3) -- Acquisitions. Prior to the acquisition, the
differential was charged to interest expense.
The interest rate cap agreements are three-year contracts entered into with
two banks in the credit facility syndicate discussed more fully in Note
(5) -- Debt. Under the terms of the agreements, interest costs on the underlying
notional principal amount will not exceed a specified amount on a cumulative
basis over a three-year period. The premium paid for the agreements is included
in the consolidated balance sheets as deferred charges and other assets and is
being amortized over the life of the agreements.
Postemployment Benefits
The Company has a policy which provides severance benefits to its salaried
employees. However, the Company cannot reasonably estimate postemployment
benefits, including severance benefits, on an ongoing basis, these costs are
charged to expense only when the probability of payment and the amount of such
payment can be reasonably determined.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109
requires deferred tax assets and liabilities to be determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates currently in effect.
F-9
<PAGE> 89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings Per Common Share
The Company is a wholly-owned subsidiary of PXC&M Holdings, Inc.
("Holdings") with a total of 200 shares of common stock issued and outstanding.
Earnings per share is not meaningful to the presentation of the consolidated
financial statements and is therefore excluded.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounting Change
In fiscal 1997, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
The statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for the long-lived assets and certain identifiable
intangibles to be disposed of. Long-lived assets and certain identifiable
intangibles to be held and used by an entity are required to be reviewed for
impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. Measurement of an impairment loss for
long-lived assets and identifiable intangibles that an entity expects to hold
and use should be based on the fair value of the assets. Long-lived assets and
certain identifiable intangibles to be disposed of are required to be reported
generally at the lower of the carrying amount or fair value less cost to sell.
Pursuant to the requirements of SFAS No. 121, in the year the Company adopts
SFAS No. 121, assets to be disposed of are to be recorded at the lower of
carrying amount or fair value less cost to sell. Upon adoption of SFAS No. 121
at the beginning of fiscal 1997 (the "Adoption Date"), the Company recorded a
cumulative effect of a change in accounting principle of $2.7 million, net of
deferred income taxes of $1.5 million, to record assets held for disposal at
fair value as of the Adoption Date. Such adjustment represents the phaseout of
operations of the closed Florida stores in fiscal 1997 that were included in
unusual charges in fiscal 1996 (see Note 2).
Reclassifications
Certain amounts in the prior year's consolidated financial statements and
related notes have been reclassified to conform to the current year's
presentation.
NOTE 2 -- UNUSUAL CHARGES
During January 1996, management implemented several strategic measures.
These measures included the disposal of the Company's Florida retail operations
(the "Florida Disposal") and a restructuring of certain operating functions. As
a result of these measures, the Company recorded approximately $32.2 million in
unusual charges. Of this amount, approximately $30.0 million was recorded in
accordance with APB Opinion No. 30, "Reporting the Results of
Operations -- Reporting the Effects of a Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions"
("APB No. 30"), related to the decision to exit the Florida retail market (the
"Loss from Florida Disposal"). In addition, the Company recorded costs for
postemployment benefits, including severance pay, under existing benefit
arrangements.
The Florida Disposal included the closing of all eight Xtra units (three of
which are owned) and a warehouse and distribution center in Florida, whether by
sale or abandonment, which was completed in the first quarter of fiscal 1997. In
fiscal 1997, the Company sold one location and the lease rights to another
F-10
<PAGE> 90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
location. The Company is currently negotiating the sale of certain other
locations. In addition, the Company has sold the equipment within all its
stores.
During fiscal 1997, the Company recorded an additional $4.2 million in
unusual charges to write down assets from the Florida operations. This
adjustment was made to reflect a revision in the estimated fair value of the
remaining properties held for sale. After this adjustment and the sale of
certain properties, $10.0 million, relating to the Florida Disposal, is included
in assets held for sale at January 25, 1997 pursuant to their anticipated sale
in the near term.
Included in the $30.0 million loss from the Florida Disposal recorded in
fiscal 1996 were estimated operating losses during the phase-out period, a
reduction of related assets to their estimated realizable value, the recognition
of net future lease obligations, employee termination benefits for Florida
operations and other closing costs. With the adoption of SFAS No. 121, the
Company recorded an additional operating loss in fiscal 1997 of $4.1 million for
the phaseout of operations subsequent to January 27, 1996. Such amount, net of
taxes, was offset by the cumulative effect of a change in accounting principle
recorded in fiscal 1997 (see Note 1).
The Florida operating division reported sales of $6.7 million, $159.7
million, and $187.8 million for fiscal 1997, fiscal 1996, and fiscal 1995,
respectively. The total assets and liabilities of the Florida operating division
as of January 25, 1997 were $10.0 million and $27.9 million, respectively, and
$26.0 million and $55.2 million, respectively, as of January 27, 1996.
Unusual charges include management's best estimates of the amounts expected
to be realized in the near term. However, the amounts the Company will
ultimately realize could differ from those estimates.
NOTE 3 -- ACQUISITIONS
On July 28, 1993, the Company acquired all of the outstanding shares of the
common stock of Pueblo International, Inc. and subsidiaries for an aggregate
purchase price of $283.6 million plus transaction costs (hereinafter referred to
as the "Transaction"). The shares were acquired from an investor group including
affiliates of Metropolitan Life Insurance Company, The First Boston Corporation
and certain current and former members of the Company's management and its Board
of Directors.
The Transaction was financed with $71.5 million of equity, the issuance of
$180.0 million in 10-year, 9 1/2% senior notes and $130.0 million borrowed by
subsidiaries of the Company under a new credit facility. See Note (5) -- Debt
for further details of the senior notes and the new credit facility. Concurrent
with the Transaction, previously existing bank debt of $19.3 million and senior
subordinated notes of $48.6 million were satisfied.
The Transaction has been accounted for as a purchase effective July 31,
1993. Accordingly, the costs of the Transaction were allocated to the assets
acquired and liabilities assumed. The excess of the aggregate purchase price
over the fair market value of net assets acquired of approximately $210.2
million was recognized as goodwill and is being amortized over 40 years.
NOTE 4 -- INVENTORIES
The cost of approximately 76% and 78% of total inventories at January 25,
1997 and January 27, 1996, respectively, is determined by the LIFO method. The
excess of current cost over inventories valued by the LIFO method was $1,980,000
and $1,570,000 as of January 25, 1997 and January 27, 1996, respectively.
F-11
<PAGE> 91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- DEBT
Total debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
----------- -----------
<S> <C> <C>
Note payable to a related party............................... $ 10,000 $ 0
Payable to a bank syndicate under term loan credit
facilities.................................................. 62,977 85,977
Payable to a bank syndicate under a revolving credit
facility.................................................... 16,000 9,000
Senior notes due 2003......................................... 180,000 180,000
Payable to a Puerto Rico governmental agency.................. 17,500 17,500
10% mortgage notes, payable in monthly installments with a
balloon payment due in fiscal 1997.......................... 0 6,214
-------- --------
286,477 298,691
Less current installments..................................... 35,250 29,214
-------- --------
$ 251,227 $ 269,477
======== ========
</TABLE>
The Transaction described in Note (3) -- Acquisitions was financed by the
issuance of $180.0 million in senior notes (the "Senior Notes") and a credit
facility consisting of $115.0 million in term loans and a maximum of $60.0
million in revolving loans (the "Credit Facility") entered into by subsidiaries
of the Company and a syndicate of banks led by The Chase Manhattan Bank
(National Association) and Scotiabank de Puerto Rico ("Bank Syndicate"). The
Credit Facility matures on July 31, 2000.
The term loans of the Credit Facility are reduced over the term of the
facility on a graduated basis in accordance with the credit agreement. Principal
payments aggregating $10.8 million are due under the term loans of the Credit
Facility in the succeeding 12-month period. Of the $60.0 million revolving
facility, $16.0 million remains outstanding at January 25, 1997 and $23.3
million is utilized in the form of standby letters of credit. The Company pays a
fee of .50% per annum on unused commitments under the $60.0 million revolving
facility. The Company has classified as non-current $9.0 million under the
revolving Credit Facility as a result of its intent to maintain this obligation
on a long-term basis. Interest on the Credit Facility fluctuates based on the
availability of Section 936 funds in Puerto Rico, Euroloan rates and the prime
rate. The weighted average interest rate on the Credit Facility, which
approximates that of short-term borrowings under the revolving facility, was
8.57% and 8.82% during fiscal 1997 and fiscal 1996, respectively.
During fiscal 1997 and subsequent thereafter, the Credit Facility has been
amended with the last amendment effective as of January 25, 1997. In accordance
with the amendments, the sole shareholder of the Company, Holdings, contributed
$5.0 million in additional capital to the Company on April 18, 1996. In
addition, Holdings provided $10.0 million in additional funds to the Company on
October 18, 1996 in return for a non-interest-bearing redeemable note payable to
a related party (the "Holdings Note"). The Holdings Note matures after the
expiration of the Credit Facility and can be redeemed earlier subject to the
Company meeting various performance and financial criteria. The proceeds of
these two transactions were used to immediately reduce the Company's term loans
under the Credit Facility. The terms of these amendments also required that the
maximum amount available under the revolving loans of the Credit Facility be
reduced from $60.0 million to $49.3 million, which is comprised of $26.0 million
in revolving loans and a maximum of $23.3 million utilized in the form of
standby letters of credit. The amendments also provide for certain revised
financial covenant requirements. In addition, the amendments require the Company
to pay additional fees on the last business day of each calendar month from
April 1997 through December 1997 equal to 1/9 of 1 1/2% of the revolving
commitment and term loans outstanding as of each respective date for certain
Bank Syndicate members.
The Credit Facility is collateralized by a pledge of the assets of the
Company, by the capital stock of, and intercompany notes issued by, the
Company's subsidiaries and by the capital stock of the Company. The
F-12
<PAGE> 92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company is required, under the terms of the Credit Facility, to meet certain
financial covenants which include minimum consolidated net worth levels,
interest and fixed charges coverage ratios and minimum EBITDA (as defined in the
credit agreement). The agreement also contains certain restrictions on
additional indebtedness, capital expenditures and the declaration and payment of
dividends.
Subsequent to January 25, 1997, the Company began negotiations with the
Bank Syndicate to restructure the Credit Facility and has begun to explore
alternative sources of finances.
The Senior Notes, which mature on August 1, 2003, are general unsecured
obligations of the Company subordinate in right of payment to all existing and
future liabilities (including, without limitation, obligations under the Credit
Facility) of its subsidiaries. The Senior Notes may be called by the holders of
the notes at 101% in the event of a change in control of the Company (as defined
in the indenture). The Senior Notes are senior to all future subordinated
indebtedness which the Company may from time to time incur. The Senior Notes
bear interest at 9.50% per annum which is payable semi-annually on February 1st
and August 1st. Terms of the Senior Notes include covenants which restrict the
Company and its subsidiaries from engaging in certain activities and
transactions.
Outstanding borrowings with a governmental agency of the Commonwealth of
Puerto Rico are $17.5 million from the issuance of industrial revenue bonds. The
bonds, which bear interest at variable rates based on an index of tax-exempt
borrowing, have a weighted average interest rate of 4.08% and 4.00% at January
25, 1997 and January 27, 1996, respectively. Principal payments are due in
fiscal 1998 ($7.5 million) and fiscal 2001 ($10.0 million), which correspond to
the maturity dates of the bonds. Payment of the bonds is guaranteed by standby
letters of credit totaling $17.9 million, issued under the $60.0 million
revolving credit facility discussed above.
The Company is a party to a collateralized Swap to reduce its exposure to
increases in interest rates on the loans payable to the Puerto Rico governmental
agency. Under the terms of the Swap, the Company pays a fixed rate of 5.29% on
the $17,500,000 notional principal amount and receives a variable rate of
interest based on an index of tax-exempt borrowing. Net interest payments under
the Swap were $325,000, $249,000, and $420,000, for fiscal 1997, fiscal 1996,
and fiscal 1995, respectively. The Swap expires in fiscal 1998 and is
collateralized by the Company's pledge of marketable securities in an amount
(reset quarterly) sufficient to offset the market risk, not to exceed
$4,130,000. The required collateral balance of $27,000 as of January 25, 1997 is
included with deferred charges and other assets in the accompanying consolidated
balance sheet. During fiscal 1995, the Company entered into a three-year
interest rate cap transaction with two banks in its Credit Facility syndicate as
a means of managing the cost of the floating rate debt under the Credit
Facility. Under the terms of the interest rate cap agreements, interest costs on
a notional principal amount of $35.0 million will not exceed approximately $7.4
million during the succeeding three-year period. Total cash requirements under
the agreements included the payment of a premium totalling $455,000 which is
being amortized over the term of the agreements and is included in the
consolidated statements of operations. The interest rate cap agreements expire
in fiscal 1998. Counterparties to the interest rate swap and cap agreements are
major financial institutions. Credit loss from counterparty nonperformance is
not anticipated.
Annual maturities of the Company's debt are as follows (in thousands):
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
1998...................................................................... $ 35,250
1999...................................................................... 20,000
2000...................................................................... 21,500
2001...................................................................... 29,727
2002...................................................................... 0
2003 and thereafter....................................................... 180,000
--------
Total........................................................... $286,477
========
</TABLE>
F-13
<PAGE> 93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total interest paid on debt, net of interest capitalized, was $34.5
million, $28.7 million, and $26.9 million for fiscal 1997, fiscal 1996, and
fiscal 1995, respectively. Interest payable as of January 25, 1997 and January
27, 1996 was $695,000 and $9.9 million, respectively.
NOTE 6 -- LEASES AND LEASEHOLD INTERESTS
The Company conducts the major part of its operations on leased premises
which have initial terms generally ranging from 20 to 25 years. Substantially,
all leases contain renewal options which extend the lease terms in increments of
5 to 10 years. The Company also has certain equipment leases which have terms of
up to five years. Realty and equipment leases generally require the Company to
pay operating expenses such as insurance, taxes and maintenance. Certain store
leases provide for percentage rentals based upon sales above specified levels.
The Company leases retail space to tenants in certain of its owned and
leased properties. The lease terms generally range from two to five years.
The major classes of property recorded under capital leases are as follows
(in thousands):
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
----------- -----------
<S> <C> <C>
Real estate................................................... $12,295 $14,464
Machinery and equipment....................................... 90 424
------- -------
12,385 14,888
Less accumulated amortization................................. 2,646 3,329
------- -------
$ 9,739 $11,559
======= =======
</TABLE>
Amortization of assets recorded under capital leases is included with
depreciation and amortization expense in the consolidated statement of
operations.
As a result of the Florida Disposal discussed further in Note
(2) -- Unusual Charges, the Company eliminated the net property recorded under
capital leases of $7.2 million and the related capital lease obligations of
$10.3 million for the Florida retail operations as of December 30, 1995.
F-14
<PAGE> 94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum rentals under non-cancelable leases at January 25, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING OPERATING
LEASES LEASES LEASES
(AS (AS (AS
LESSEE) LESSEE) LESSOR)
----------- ----------- -----------
<S> <C> <C> <C>
1998............................................. $ 1,775 $ 10,608 $ 967
1999............................................. 1,640 10,208 801
2000............................................. 1,524 9,375 712
2001............................................. 1,523 8,729 436
2002............................................. 1,455 8,126 286
2003 and thereafter.............................. 9,739 77,629 780
------ ------- ----
17,656 $ 124,675 $ 3,982
======= ====
Less executory costs............................. 147
------
Net minimum lease payments..................... 17,509
Less amount representing interest................ 8,782
------
Present value of net minimum lease payments under
capital lease.................................. $ 8,727
======
Total minimum sublease rentals to be received in
the future..................................... $ 1,040 $ 5,512
====== =======
</TABLE>
Additionally, the Company is committed to future minimum payments under
leases which it has entered into for stores not opened as of January 25, 1997
totaling $54.5 million over a 20- to 25-year period. Payment on these leases
will commence with occupancy.
Rent expense and the related contingent rentals under operating leases were
$11,899,000 and $567,000 for fiscal 1997, respectively, $12,636,000 and $645,000
for fiscal 1996, respectively, and $12,008,000 and $658,000 for fiscal 1995,
respectively.
Contingent rentals under capital leases, which are directly related to
sales, were $289,000 for fiscal 1997, $331,000 for fiscal 1996, and $387,000 for
fiscal 1995. Interest paid on capital lease obligations was $1,152,000 for
fiscal 1997, $2,286,000 for fiscal 1996, and $2,455,000 for fiscal 1995.
Sublease rental income for operating and capital leases was $1,881,000 for
fiscal 1997, $1,854,000 for fiscal 1996, and $1,747,000 for fiscal 1995.
NOTE 7 -- STOCKHOLDER'S EQUITY
Authorized common stock of the Company consists of 200 shares of $.10 par
value, all of which are issued and outstanding and held by Holdings as of
January 25, 1997 and January 27, 1996.
During April 1994, the Company received additional capital of $15.0 million
from its parent company, Holdings. Under the terms of the Credit Facility, as
amended, the Company used $15.0 million to reduce the amounts outstanding under
its term loan credit facilities and revolving credit facility, including a $5.0
million prepayment on the fiscal 1996 principal amortization of the term loans.
During April 1996, the Company received additional capital of $5.0 million
from its parent company, Holdings, which it used to reduce the amounts
outstanding under its term Credit Facility.
F-15
<PAGE> 95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- INCOME TAXES
As described in Note (1) -- Significant Accounting Policies, the Company's
method of accounting for income taxes is the liability method as required by
SFAS No. 109.
The components of income tax expense (benefit) are as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
Current
Federal............................................ $ (383) $ (1,735) $ 343
State.............................................. (387) 486 30
U.S. Possessions................................... 494 184 2,476
------- -------- -------
$ (276) $ (1,065) $ 2,849
------- -------- -------
Deferred
Federal............................................ $ (312) $ (9,865) $ 98
State.............................................. 1,095 (1,261) 28
U.S. Possessions................................... (10,042) (8,019) (7,765)
------- -------- -------
(9,259) (19,145) (7,639)
------- -------- -------
Total income tax benefit................... $(9,535) $(20,210) $(4,790)
======= ======== =======
</TABLE>
The significant components of the net deferred tax liabilities are as
follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Reserve for self-insurance claims........................... $ 8,128 $ 8,964
Employee benefit plans...................................... 6,793 7,293
Property and equipment...................................... 7,144 3,007
Reserve for closed stores................................... 4,116 9,427
Accrued expenses and other liabilities and deferred
credits.................................................. 4,125 4,672
Other operating loss and tax credit carryforwards........... 12,437 2,832
All other................................................... 1,277 3,397
-------- --------
Total deferred tax assets........................... $ 44,020 $ 39,592
-------- --------
Deferred tax liabilities:
Property and equipment...................................... $ (24,057) $ (25,640)
Tradenames.................................................. (12,619) (12,986)
Operating leases............................................ (7,517) (8,057)
Inventories................................................. (4,274) (4,108)
Other assets................................................ (2,313) (2,807)
Accrued expenses and other liabilities and deferred
credits.................................................. (1,046) (1,555)
-------- --------
Total deferred tax liabilities...................... $ (51,826) $ (55,153)
-------- --------
Valuation allowance for deferred tax assets................. (279) (287)
-------- --------
Net deferred tax liabilities ....................... $ (8,085) $ (15,848)
======== ========
</TABLE>
SFAS No. 109 requires a valuation allowance against deferred tax assets if,
based on the weight of the available evidence, it is more likely than not that
some or all of the deferred tax assets may not be realized.
F-16
<PAGE> 96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the difference between actual income tax benefit and
income taxes computed at U.S. Federal statutory tax rates is as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
U.S. Federal statutory rate applied to pretax
loss.............................................. $(10,187) $(18,398) $(3,288)
Effect of varying rates applicable in other taxing
jurisdictions..................................... (992) (1,052) (785)
Amortization of goodwill............................ 1,761 1,834 2,133
State and local taxes............................... 708 (775) 58
Effect of rate changes in other taxing
jurisdictions..................................... -- -- (3,034)
All others, net..................................... (825) (1,819) 126
-------- -------- -------
Income tax benefit.................................. $ (9,535) $(20,210) $(4,790)
======== ======== =======
</TABLE>
The Company has operations in U.S. possessions and these operations are of
U.S. corporations which are subject to U.S. income tax. Also, the Company had
significant U.S. operations in fiscal 1995 and fiscal 1996 and closed its U.S.
operations during fiscal 1997.
During fiscal 1995, the Puerto Rico tax rate changed from 42% to 39%; this
was the cause for the $3,034 million effect of rate change.
As of January 25, 1997, the Company has unused net operating loss
carryforwards of $18,000,000 and $8,000,000 available to offset future taxable
income in Puerto Rico and the United States through fiscal years 2004 and 2011,
respectively.
The Company also has unused investment tax credits of approximately
$811,000 available to offset future U.S. income tax liabilities. Such investment
tax credits expire as follows: 1999 -- $97,000; 2000 -- $20,000;
2001 -- $674,000; and 2002 -- $20,000. Utilization of the investment tax credit
carryforward may be limited each year.
Total income taxes paid were $496,600 for fiscal 1997, $1,286,000 for
fiscal 1996, and $1,886,000 for fiscal 1995.
NOTE 9 -- RETIREMENT BENEFITS
The Company has a non-contributory defined benefit plan (the "Retirement
Plan") covering substantially all full-time and certain part-time associates.
Retirement Plan benefits are based on years of service and a base level of
compensation. The Company funds Retirement Plan costs in accordance with the
requirements of the Employee Retirement Income Security Act of 1974.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
Retirement Plan assets consist primarily of stocks, bonds and U.S. Government
securities. Full vesting for the Retirement Plan occurs upon the completion of
five years of service.
Net pension cost under the Retirement Plan includes the following
components (in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1997 1996 1995
------- ------ -------
<S> <C> <C> <C>
Service cost -- benefits earned during the............. $ 1,556 $1,893 $ 2,120
period Interest cost on projected benefit
obligation........................................ 1,512 1,466 1,419
Expected return on plan assets......................... (1,121) (994) (1,118)
Net amortization and deferrals......................... (97) (7) (7)
------- ------ -------
NET PENSION COST.................................. $ 1,850 $2,358 $ 2,414
======= ====== =======
</TABLE>
F-17
<PAGE> 97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the net periodic
pension cost for the Retirement Plan are 7.5% and 5.0%, respectively, for fiscal
years 1997, 1996 and 1995. The average expected long-term rate of return on plan
assets is 9.0% for the three-year period.
The funded status and amounts recognized in the Company's consolidated
balance sheets for the Retirement Plan are as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $15,143 at January 25, 1997 and $14,005
at January 27, 1996...................................... $ 16,540 $ 15,793
======== ========
Plan assets at fair value..................................... $ 12,080 $ 12,251
Projected benefit obligation for service rendered to date..... (20,449) (20,396)
-------- --------
FUNDED STATUS....................................... (8,369) (8,145)
Unrecognized net gain......................................... (1,267) (3,459)
Unrecognized prior service cost............................... (79) (99)
-------- --------
NET PENSION LIABILITY............................... $ (9,715) $ (11,703)
======== ========
</TABLE>
The Company maintains a Supplemental Executive Retirement Plan (the
"Supplemental Plan") for its officers under which the Company will pay, from
general corporate funds, a supplemental pension equal to the difference between
the annual amount of pension calculated under the Supplemental Plan and the
amount the participant will receive under the Retirement Plan. Effective January
1, 1992, the Board of Directors amended the Supplemental Plan in order to
conform various provisions and definitions with those of the Retirement Plan.
The pension benefit calculation under the Supplemental Plan is limited to a
total of 20 years employment and is based on a specified percentage of the
average annual compensation received for the five highest consecutive years
during a participant's last 10 years of service, reduced by the participant's
annual Retirement Plan and social security benefits. Full vesting for the
Supplemental Plan occurs upon the completion of five years of service.
Net pension cost under the Supplemental Plan includes the following
components (in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Service cost -- benefits earned during the period............. $ 98 $116 $268
Interest cost on projected benefit obligation................. 328 284 340
Net amortization and deferrals................................ (68) (99) 7
---- ---- ----
NET PENSION COST.................................... $358 $301 $615
==== ==== ====
</TABLE>
The average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the net periodic
pension cost for the Supplemental Plan are 7.5% and 5.0%, respectively, for
fiscal years 1997, 1996 and 1995.
F-18
<PAGE> 98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status and amounts recognized in the Company's consolidated
balance sheets for the Supplemental Plan are as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $3,664 at January 25, 1997 and $3,639
at January 27, 1996...................................... $ 3,681 $ 3,674
======= =======
Projected benefit obligation for service rendered to date..... $(4,384) $(4,475)
------- -------
FUNDED STATUS............................................ (4,384) (4,475)
Unrecognized net gain......................................... (1,433) (1,272)
Unrecognized prior service cost............................... 50 57
------- -------
NET PENSION LIABILITY.................................... $(5,767) $(5,690)
======= =======
</TABLE>
The Company has a non-contributory defined contribution plan covering its
eligible associates in Puerto Rico and the U.S. Virgin Islands. Contributions to
this plan are at the discretion of the Board of Directors. The Company also has
a contributory thrift savings plan in which it matches eligible contributions
made by participating eligible associates in the United States. Expenses related
to these plans, which are recognized in the year the cost is incurred, were
$728,000 for fiscal 1997, $862,000 for fiscal 1996 and $774,000 for fiscal 1995.
NOTE 10 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments.
Cash and Cash Equivalents
The carrying amount of cash and cash equivalents approximates fair value
due to the short maturity of these instruments.
Marketable Securities
Due to the nature and maturities of the underlying securities in the
portfolio, the carrying amount of marketable securities approximates fair value.
The carrying and fair value amounts include securities which the Company
classifies as marketable securities in the accompanying consolidated balance
sheets, as well as securities held as collateral for the Swap which are included
in the consolidated balance sheets as deferred charges and other assets.
Debt
The fair value of the Company's indebtedness, excluding the Senior Notes,
is estimated based on quoted market prices for similar instruments. The fair
value of the Senior Notes is determined based on market quotes.
Interest Rate Instruments
The fair value of the Swap and interest rate cap agreements used for
hedging purposes is the amount the Company would pay to terminate these
agreements as of the balance sheet dates, taking into account current interest
rates.
F-19
<PAGE> 99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair value of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 25, 1997 JANUARY 27, 1996
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents........... $ 12,148 $ 12,148 $ 6,998 $ 6,998
Marketable securities .............. 115 115 1,245 1,245
Debt................................ (286,477) (275,776) (298,691) (289,853)
Interest rate swap agreement........ -- (27) (138) (357)
Interest rate cap agreements........ 57 -- 210 1
</TABLE>
NOTE 11 -- CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents,
marketable securities and the interest rate instruments (described in Note
(5) -- Debt). The Company places its temporary cash investments with
highly-rated financial institutions in investment grade short-term debt
instruments. Marketable securities consist exclusively of obligations issued or
guaranteed by the United States of America or its agencies and mutual funds in
which the underlying securities are obligations of the United States of America.
NOTE 12 -- CONTINGENCIES
At January 25, 1997, the Company is party to various lawsuits arising in
the ordinary course of business. Additionally, the Company is also a defendant,
together with other companies, including those in the grocery industry, in two
legal actions pending in the United States District Court. These lawsuits allege
that diverting companies, collectively known as Premium Sales, which are
presently in bankruptcy, were engaged in fraudulent activities and that Pueblo
and other grocers are liable for their investors' losses. The losses claimed
against each of the defendants in these lawsuits, including Pueblo, are alleged
to be approximately $300 million (plus treble damages, punitive damages and/or
attorney fees). Pueblo's alleged liability is solely based on the claim that one
of its former employees confirmed the validity of certain allegedly false
grocery diverting transactions. The Company contested vigorously such claims. On
October 25, 1996, a settlement was reached between the Company and the
Plaintiffs. The settlement was preliminarily approved on February 11, 1997. A
final fairness hearing has been scheduled for May 7, 1997. The amount of the
settlement is fully reserved by the Company as of January 25, 1997.
F-20
<PAGE> 100
APPENDIX A
THE COMMONWEALTH OF PUERTO RICO
The information set forth in this Appendix has been extracted from Puerto
Rico -- Facts and Figures (July 1996), a publication of FOMENTO, the Economic
Development Administration and the Puerto Rico Industrial Development Company.
Such information has not been independently verified by the Company or the
Initial Purchasers in connection with the Exchange Offer. References in this
Appendix to "fiscal year" are to Puerto Rico's fiscal year, which ends June 30.
OVERVIEW
Puerto Rico is a U.S. commonwealth located 1,612 miles south of New York
and 1,050 miles southeast of Miami. Situated on the northeast periphery of the
Caribbean Sea, Puerto Rico is approximately 100 miles long and 35 miles wide and
had a population of 3.7 million people in 1995.
Puerto Rico was discovered by Christopher Columbus in 1493 and became a
part of the United States as a result of the Spanish-American War in 1898. In
1950, the U.S. Congress authorized Puerto Rico to draft and approve its
Constitution. The current relationship between Puerto Rico and the United States
took effect in 1952.
Puerto Rico has a stable democratic government closely modeled on the
United States system. Its government structure and practices closely resemble
those of the 50 states.
Puerto Ricans are citizens of the U.S. Puerto Rico is represented in the
U.S. Congress by an elected Resident Commissioner who votes in committees and
caucuses of the House of Representatives but not on the House floor. Most
federal taxes, except those such as social security taxes which are imposed by
mutual consent, are not levied in Puerto Rico. No federal income tax is levied
on income earned within Puerto Rico, except for federal employees and U.S.
subsidiaries which are subject to taxes.
The United States and Puerto Rico share a common defense, market and
currency. The official languages of Puerto Rico are Spanish and English.
THE ECONOMY
In fiscal 1995, Puerto Rico's Gross National Product ("GNP") was $28.4
billion and Gross Domestic Product ("GDP") was $42.4 billion. Puerto Rico's real
GNP experienced low growth rates from fiscal 1990 to fiscal 1992 as a result of
the recession in the United States. The GNP growth rate was 2.5% during fiscal
1990, 0.9% in fiscal 1991, and 0.8% in fiscal 1992. Real GNP grew by 3.0% in
fiscal 1993, 2.6% in fiscal 1994 and 2.9% in fiscal 1995. The Puerto Rico
Planning Board forecasts growth of 2.7% and 2.6% for fiscal years 1996 and 1997,
respectively.
Economic Performance by Sector
Puerto Rico has a diversified economy in which manufacturing and service
industries comprise the principal sectors.
A-1
<PAGE> 101
The following table presents annual statistics of GDP by sector and GNP for
the four fiscal years ended June 30, 1995.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------------------------
1992 1993 1994 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Manufacturing........................... $ 14,183 $ 15,428 $ 16,584 $ 17,719
Services(1)............................. 13,168 14,109 15,086 15,892
Government(2)........................... 3,672 3,881 4,071 4,471
Transportation, communication and public
utilities............................. 2,830 3,009 3,114 3,264
Agriculture, Forestry and fisheries..... 420 411 377 366
Construction(3)......................... 798 874 907 959
Statistical Discrepancy................. (439) (789) (605) (306)
-------- -------- -------- --------
Total GDP............................... 34,630 36,923 39,536 42,364
Less Net Payments Abroad................ (10,934) (11,790) (12,945) (13,992)
-------- -------- -------- --------
Total GNP..................... $ 23,696 $ 25,133 $ 26,592 $ 28,371
======== ======== ======== ========
</TABLE>
- ---------------
(1) Includes wholesale and retail trade, finance, insurance and real estate; and
other services.
(2) Includes the central government, its municipalities, and the federal
government; it also includes public corporations.
(3) Includes mining.
Source: Puerto Rico Planning Board.
Note: Aggregates may not equal totals due to rounding.
In fiscal 1995, the manufacturing sector generated 41.8% of Puerto Rico's
GDP. The manufacturing sector employed 153,611 workers in fiscal 1995. As of
January 1996, manufacturing wages averaged 60% of wages in the United States.
The service sector generated 37.5% of GDP in fiscal 1995. As of December
1995, 20 commercial banks and one trust company in Puerto Rico had total assets
of $32.0 billion. The service sector employed 376,000 workers in fiscal 1995.
Within the service sector, tourism has grown substantially in each of the
last ten years. Tourism represented approximately 6.5% of Puerto Rico's GNP in
fiscal 1995. San Juan is the second largest port for cruise ships in the U.S. in
terms of number of visitors.
The public sector contributed 10.6% of Puerto Rico's GDP. In fiscal 1995,
the government provided jobs for 297,000 workers.
Personal Income
Real per capita personal income has grown at an average annual rate of 2.2%
during the past five years. In fiscal 1995, personal income per capita was
$7,296.
Employment and Unemployment
According to the Household Survey of the Department of Labor and Human
Resources the number of persons employed in Puerto Rico during fiscal 1995
averaged 1,051,000. Unemployment, although at a low level compared to the mid
eighties, was 13.8% for fiscal 1995.
A-2
<PAGE> 102
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER COVERED BY THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE INITIAL PURCHASERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 12
Use of Proceeds....................... 16
Capitalization........................ 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
The Exchange Offer.................... 28
Business.............................. 35
Management............................ 44
Principal Shareholders................ 45
Description of Notes.................. 45
Description of New Bank Credit
Agreement........................... 68
Initial Notes Registration Rights..... 68
Taxation.............................. 70
Plan of Distribution.................. 73
Legal Matters......................... 74
Experts............................... 74
Index to Consolidated Financial
Statements.......................... F-1
Appendix A: Commonwealth of Puerto
Rico................................ A-1
</TABLE>
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN SELLING
EXCHANGE NOTES RECEIVED IN EXCHANGE FOR INITIAL NOTES HELD FOR THEIR OWN
ACCOUNT.
======================================================
======================================================
[PUEBLO XTRA LOGO]
PUEBLO XTRA
INTERNATIONAL, INC.
OFFER TO EXCHANGE
9 1/2% SERIES C SENIOR NOTES DUE 2003
FOR ALL OUTSTANDING
9 1/2% SERIES B SENIOR NOTES DUE 2003
------------------------
PROSPECTUS
------------------------
JULY , 1997
======================================================
<PAGE> 103
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits a company to
indemnify directors, officers, employees and agents of the Company against
actual and reasonable expenses (including attorneys' fees) incurred by such
person in connection with any action, suit or proceeding if (i) he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the company, and (ii) in the case of a criminal proceeding, he had
no reasonable cause to believe his conduct was unlawful. Except as ordered by a
court, no indemnification shall be made in connection with any proceeding
brought by or in the right of the Company where the person involved is adjudged
to be liable to the Company.
The Company's Certificate of Incorporation, pursuant to Section 102(b)(7)
of the General Corporation Law of Delaware, contains provisions eliminating the
personal liability of a director to the Company or its stockholders for money
damages for breach of fiduciary duty as a director. This provision in the
Certificate of Incorporation does not eliminate the duty of care and in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to the Company for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of the law,
for actions leading to improper personal benefits to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
unlawful under Delaware law. The provision does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
Section 5.1 of the Bylaws of the Company provides for indemnification of
the directors and officers of the Company to the full extent permitted by law,
as now in effect or later amended. In addition, the Bylaws provide for
indemnification against expenses incurred by a director or officer to be paid by
the Company at reasonable intervals in advance of the final disposition of such
action, suit or proceeding; provided, however, that, if required by the Delaware
General Corporation Law, an advancement of expenses will be made only upon
receipt of an undertaking by or on behalf of the director or officer to repay
such amount if it shall be ultimately determined that he is not entitled to be
indemnified by the Company. The Bylaws further provide for a contractual cause
of action on the part of directors and officers of the Company with respect to
indemnification claims which have not been paid by the Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <S>
1.1* Purchase Agreement between Pueblo Xtra International, Inc. and NationsBanc Capital
Markets, Inc. and Scotia Capital Markets (USA) Inc., dated April 24, 1997.
3.1 Restated Certificate of Incorporation of the Company (incorporated by reference to
Exhibit 3.1 to Registrant's Registration Statement No. 33-63372 on Form S-1).
3.2 Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit
3.2 to Registrant's Registration Statement No. 33-63372 on Form S-1).
4.1* Specimen Note for Registrant's 9 1/2% Series C Senior Notes Due 2003 (included in
Exhibit 4.2).
4.2* Indenture, dated as of April 24, 1997, between Pueblo Xtra International, Inc. and
United States Trust Company.
4.3* Registration Rights Agreement, dated as of April 29, 1997, between Pueblo Xtra
International, Inc. and NationsBanc Capital Markets, Inc. and Scotia Capital
Markets (USA) Inc.
4.4* Form of Exchange Agent Agreement.
5.1* Opinion of Milbank, Tweed, Hadley & McCloy.
</TABLE>
II-1
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <S>
10.1* Amended and Restated Credit Agreement among Pueblo Xtra International, Inc., Pueblo
International, Inc., Xtra Super Food Centers, Inc., various lending institutions
and The Bank of Nova Scotia and NationsBank, N.A. (South) as Agents, dated as of
April 29, 1997.
12.1* Statements re: computation of ratios.
21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to
Registrant's Annual Report on Form 10-K for the fiscal year ended January 25,
1997).
23.1 Consent of Deloitte & Touche LLP.
23.2* Consent of Milbank, Tweed, Hadley & McCloy (contained in Exhibit 5.1).
24.* Powers of Attorney.
25.1* Statement of Eligibility and Qualification of Trustee on Form T-1 of United States
Trust Company of New York under the Trust Indenture Act of 1939.
99.1* Form of Letter of Transmittal for the 9 1/2% Series C Senior Notes due 2003.
99.2* Annual Report on Form 10-K for the year ended January 25, 1997.
99.3 Quarterly Report on Form 10-Q for the quarter ended May 17, 1997.
</TABLE>
- ---------------
* Previously filed.
(b) Financial Statement Schedule
The following financial statement is filed as part of this Registration
Statement, but not included in the Prospectus.
<TABLE>
<CAPTION>
SCHEDULE PAGE
- -------------------------------------------------------------------------------------- -----
<S> <C>
Independent Auditors' Report.......................................................... S-1
Schedule I -- Condensed Financial Information of Registrant........................... S-2
Schedule II -- Valuation and Qualifying Accounts (incorporated by reference to
Schedule II of Registrant's Annual Report on Form 10-K for the fiscal year ended
January 25, 1997)...................................................................
</TABLE>
All other schedules for which provision is made in Regulation S-X of the
Commission are not required under the related instructions or are inapplicable
or the required information is included in the financial statements or notes
thereto and, therefore, have been omitted.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(b) That insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of
II-2
<PAGE> 105
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(c) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
(d) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
II-3
<PAGE> 106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of New York, state of New
York, on July 1, 1997.
PUEBLO XTRA INTERNATIONAL
By: /s/ WILLIAM T. KEON, III
------------------------------------
William T. Keon, III
President and CEO
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ ----------------------------------- --------------
<C> <S> <C>
Chairman of the Board
- ------------------------------------------
Gustavo A. Cisneros
/s/ WILLIAM T. KEON, III Director; President; Chief July 1, 1997
- ------------------------------------------ Executive Officer
William T. Keon, III
/s/ * Director; Executive Vice President; July 1, 1997
- ------------------------------------------ President of Puerto Rico Food
David L. Aston Retail Division
/s/ * Controller and Chief Accounting July 1, 1997
- ------------------------------------------ Officer
Daniel Cammarata
/s/ * Director July 1, 1997
- ------------------------------------------
Steven I. Bandel
/s/ * Director July 1, 1997
- ------------------------------------------
Cristina Pierreti
Director
- ------------------------------------------
Alejandro Rivera
</TABLE>
*By:/s/ WILLIAM T. KEON, III
- -----------------------------------
William T. Keon, III
Attorney-in-Fact
II-4
<PAGE> 107
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
Pueblo Xtra International, Inc.
San Juan, Puerto Rico
Pompano Beach, Florida
We have audited the consolidated financial statements of Pueblo Xtra
International, Inc. and Subsidiaries as of January 25, 1997 and January 27, 1996
and for each of the three years in the period ended January 25, 1997; such
report is included elsewhere in this registration statement. Our audits also
included the consolidated financial statement schedule of Pueblo Xtra
International, Inc. and Subsidiaries as of January 25, 1997 and January 27, 1996
and for each of the three years in the period ended January 25, 1997 included
elsewhere in this registration statement. This consolidated financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Deloitte & Touche LLP
Miami, Florida
April 3, 1997
S-1
<PAGE> 108
SCHEDULE I
PUEBLO XTRA INTERNATIONAL, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Interest receivable................................................... $ 8,632 $ 8,729
Prepaid expenses...................................................... 437 158
-------- --------
TOTAL CURRENT ASSETS.................................................... 9,069 8,887
-------- --------
INVESTMENT IN SUBSIDIARIES.............................................. 43,419 45,250
NOTE RECEIVABLE - MIRROR LOAN........................................... 175,000 175,000
DEFERRED INCOME TAXES................................................... -- 14
DEFERRED CHARGES AND OTHER ASSETS....................................... 4,571 5,274
-------- --------
TOTAL ASSETS............................................................ $ 232,059 $ 234,425
======== ========
</TABLE>
S-2
<PAGE> 109
SCHEDULE I
PUEBLO XTRA INTERNATIONAL, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accrued expenses...................................................... $ -- $ 8,363
Notes payable to a related party...................................... 10,000 --
Intercompany payable, net............................................. 9,078 1,163
-------- --------
TOTAL CURRENT LIABILITIES.......................................... 19,078 9,526
NOTES PAYABLE........................................................... 180,000 180,000
-------- --------
TOTAL LIABILITIES.................................................. 199,078 189,526
-------- --------
COMMITMENTS AND CONTINGENCIES........................................... -- --
STOCKHOLDER'S EQUITY
Common stock.......................................................... -- --
Additional paid-in capital............................................ 91,500 86,500
Retained Earnings (accumulated deficit)............................... (58,519) (41,601)
-------- --------
TOTAL STOCKHOLDER'S EQUITY......................................... 32,981 44,899
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY......................... $ 232,059 $ 234,425
======== ========
</TABLE>
S-3
<PAGE> 110
SCHEDULE I
PUEBLO XTRA INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Interest income.................................... 17,653 17,653 17,804
Interest expense on debt........................... (17,711) (17,756) (17,756)
Selling, general and administrative expenses....... (16) (63) (27)
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY LOSSES
FROM SUBSIDIARIES................................ (74) (166) 21
Income tax benefit (expense)....................... (14) 64 (38)
-------- -------- --------
LOSS BEFORE EQUITY LOSSES FROM SUBSIDIARIES........ (88) (102) (17)
Equity loss from subsidiaries (net of cumulative
effect of a change in accounting principle of
$2,653 in fiscal 1997)........................... (16,830) (32,255) (4,624)
-------- -------- --------
NET LOSS........................................... $(16,918) $(32,357) $ (4,641)
======== ======== ========
</TABLE>
S-4
<PAGE> 111
SCHEDULE I
PUEBLO XTRA INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $(16,918) $(32,357) $ (4,641)
Adjustments to reconcile net loss to net cash used in
operating activities
Deferred income taxes................................. 14 (14) 146
Decrease in deferred charges and other assets......... 703 704 703
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable.......... 97 543 (683)
Decrease (increase) in prepaid expenses............. (279) (51) (107)
Increase in intercompany receivable, net............ -- 2,805 (2,805)
Increase (decrease) in accounts payable and accrued
expenses......................................... (8,363) (47) (311)
Increase (decrease) in intercompany payable, net.... 7,915 1,163 (1,926)
-------- -------- --------
Net cash used in operating activities................. (16,831) (27,254) (9,624)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in investment in subsidiaries........ 1,831 27,254 (5,376)
-------- -------- --------
Net cash provided by (used in) investing activities... 1,831 27,254 (5,376)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to a related party........... 10,000 -- --
Proceeds from capital contribution....................... 5,000 -- 15,000
-------- -------- --------
Net cash provided by financing activities............. 15,000 -- 15,000
-------- -------- --------
Net decrease in cash and cash equivalents.................. -- -- --
Cash and cash equivalents at beginning of year............. -- -- --
-------- -------- --------
Cash and cash equivalents at end of year................... $ -- $ -- $ --
======== ======== ========
</TABLE>
S-5
<PAGE> 112
REGISTRATION STATEMENT NO. 333-27523
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
TO
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PUEBLO XTRA INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
VOLUME I
================================================================================
<PAGE> 113
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<C> <S>
1.1* Purchase Agreement between Pueblo Xtra International, Inc. and NationsBanc Capital
Markets, Inc. and Scotia Capital Markets (USA) Inc., dated April 24, 1997.
3.1 Restated Certificate of Incorporation of the Company (incorporated by reference to
Exhibit 3.1 to Registrant's Registration Statement No. 33-63372 on Form S-1).
3.2 Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2
to Registrant's Registration Statement No. 33-63372 on Form S-1).
4.1* Specimen Note for Registrant's 9 1/2% Series C Senior Notes Due 2003 (included in
Exhibit 4.2).
4.2* Indenture, dated as of April 24, 1997, between Pueblo Xtra International, Inc. and
United States Trust Company.
4.3* Registration Rights Agreement, dated as of April 29, 1997, between Pueblo Xtra
International, Inc. and NationsBanc Capital Markets, Inc. and Scotia Capital Markets
(USA) Inc.
4.4* Form of Exchange Agent Agreement.
5.1* Opinion of Milbank, Tweed, Hadley & McCloy.
10.1* Amended and Restated Credit Agreement among Pueblo Xtra International, Inc., Pueblo
International, Inc., Xtra Super Food Centers, Inc., various lending institutions and
The Bank of Nova Scotia and NationsBank, N.A. (South) as Agents, dated as of April
29, 1997.
12.1* Statements re: computation of ratios.
21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 2.1 to Registrant's
Annual Report on Form 10-K for the fiscal year ended January 25, 1997).
23.1 Consent of Deloitte & Touche LLP.
23.2* Consent of Milbank, Tweed, Hadley & McCloy (contained in Exhibit 5.1).
24.* Powers of Attorney
25.1* Statement of Eligibility and Qualification of Trustee on Form T-1 of United States
Trust Company of New York under the Trust Indenture Act of 1939.
99.1* Form of Letter of Transmittal for the 9 1/2% Series C Senior Notes due 2003.
99.2* Annual Report on Form 10-K for the year ended January 25, 1997.
99.3 Quarterly Report on Form 10-Q for the quarter ended May 17, 1997.
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Pueblo Xtra
International, Inc. and subsidiaries (the "Company") on Form S-4 of our report
dated April 3, 1997 (which expresses an unqualified opinion and includes an
explanatory paragraph relating to the Company's adoption of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of"), appearing in
the Prospectus, which is part of this Registration Statement, and to the
incorporation by reference in this Registration Statement of our report dated
April 3, 1997 relating to the financial statement schedule appearing in the
Company's Annual Report on Form 10-K for the year ended January 25, 1997.
We also consent to the reference to us under the headings "Summary Financial
Data," "Selected Financial Data" and "Experts" in such Prospectus.
Deloitte & Touche LLP
Miami, Florida
June 30, 1997
<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MAY 17, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------ --------
COMMISSION FILE NUMBER: 33-63372
PUEBLO XTRA INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 65-0415593
- - -------------------------------------- ----------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1300 N.W. 22ND STREET
POMPANO BEACH, FLORIDA 33069
- - -------------------------------------------- ----------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (954) 977-2500
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK, $ .10 PAR VALUE,
OUTSTANDING AS OF JUNE 20, 1997 -- 200.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Page(s)
-------
<S> <C>
Consolidated Balance Sheets (Unaudited) -
May 17, 1997 and January 25, 1997.............................3-4
Consolidated Statements of Operations (Unaudited) -
16 weeks ended May 17, 1997 and May 18, 1996....................5
Consolidated Statements of Cash Flows (Unaudited) -
16 weeks ended May 17, 1997 and May 18, 1996....................6
Notes to Consolidated Financial Statements (Unaudited) .......................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..........................8-11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............................12
</TABLE>
<PAGE> 3
CONSOLIDATED BALANCE SHEETS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
May 17, January 25,
1997 1997
-------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,310 $ 12,148
Marketable securities (market value of $89
at January 25, 1997) -- 89
Accounts receivable 2,968 4,443
Inventories 58,486 59,503
Assets held for sale 3,804 13,804
Prepaid expenses 18,279 10,428
Deferred income taxes 3,163 3,316
-------- --------
TOTAL CURRENT ASSETS 97,010 103,731
-------- --------
PROPERTY AND EQUIPMENT
Land and improvements 18,282 18,278
Buildings and improvements 62,843 62,388
Furniture, fixtures and equipment 98,822 98,138
Leasehold improvements 34,917 35,408
Construction in progress 4,860 4,253
-------- --------
219,724 218,465
Less accumulated depreciation and amortization 82,928 77,289
-------- --------
136,796 141,176
Property under capital leases, net 9,506 9,739
-------- --------
TOTAL PROPERTY AND EQUIPMENT, NET 146,302 150,915
GOODWILL, net of accumulated amortization of $19,598
at May 17, 1997 and $18,050 at January 25, 1997 182,120 183,668
DEFERRED INCOME TAXES 12,264 12,923
TRADENAMES 31,304 31,570
DEFERRED CHARGES AND OTHER ASSETS 38,802 39,933
-------- --------
TOTAL ASSETS $507,802 $522,740
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
May 17, January 25,
1997 1997
--------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 80,823 $ 74,951
Accrued expenses 36,243 36,054
Salaries, wages and benefits payable 11,700 11,563
Short-term borrowing -- 7,000
Notes payable to a related party -- 10,000
Income taxes payable 184 110
Current installments of long-term debt 7,500 18,250
Current obligations under capital leases 633 617
Deferred income taxes 1,226 1,403
--------- ---------
TOTAL CURRENT LIABILITIES 138,309 159,948
LONG-TERM DEBT, net of current portion 10,000 71,227
NOTES PAYABLE 256,760 180,000
CAPITAL LEASE OBLIGATIONS, net of current portion 7,911 8,110
RESERVE FOR SELF-INSURANCE CLAIMS 11,275 12,201
DEFERRED INCOME TAXES 19,859 22,921
OTHER LIABILITIES AND DEFERRED CREDITS 35,497 35,352
--------- ---------
TOTAL LIABILITIES 479,611 489,759
--------- ---------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDER'S EQUITY
Common stock, $.10 par value; 200 shares authorized
and issued -- --
Additional paid-in capital 91,500 91,500
Accumulated deficit (63,309) (58,519)
--------- ---------
TOTAL STOCKHOLDER'S EQUITY 28,191 32,981
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 507,802 $ 522,740
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 5
CONSOLIDATED STATEMENTS OF OPERATIONS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
16 weeks 16 weeks
ended ended
May 17, May 18,
1997 1996
--------- --------
<S> <C> <C>
Net sales 297,192 317,060
Cost of goods sold 219,701 236,557
--------- --------
GROSS PROFIT 77,491 80,503
--------- --------
OPERATING EXPENSES
Selling, general and administrative
expenses 59,615 66,876
Depreciation and amortization 12,048 12,003
--------- --------
OPERATING PROFIT (LOSS) 5,828 1,624
Sundry, net (19) (43)
--------- --------
INCOME (LOSS) BEFORE INTEREST,
INCOME TAXES, EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING PRINCIPLE 5,809 1,581
Interest expense on debt (8,668) (9,096)
Interest expense on capital lease
obligations (366) (356)
Interest and investment income, net 300 51
--------- --------
LOSS BEFORE INCOME TAXES,
EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING
PRINCIPLE (2,925) (7,820)
Income tax benefit 579 2,147
--------- --------
LOSS BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING
PRINCIPLE (2,346) (5,673)
Extraordinary item:
Loss on early extinguishment of debt, net of
deferred income taxes of $1,567 (2,444) --
Cumulative effect of a change in accounting
principle, net of deferred income taxes of $1,496 -- 2,653
--------- --------
NET LOSS (4,790) (3,020)
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
16 weeks ended 16 weeks ended
May 17, May 18,
1997 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,790) $ (3,020)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities, net of effects of disposal of
Florida retail operations:
Cumulative effect of a change in accounting principle -- (2,653)
Extraordinary loss on early extinguishment of debt 2,444 --
Depreciation and amortization of property and equipment 7,209 7,633
Amortization of intangible and other assets 4,839 4,370
Amortization of bond discount 48 --
Deferred income taxes (859) (1,053)
Loss on disposal of property and equipment, net 104 90
Decrease (increase) in deferred charges, goodwill, and other assets (3,435) 493
Decrease in reserve for self-insurance claims (925) (322)
Increase (decrease) in other liabilities and deferred credits 774 (613)
Changes in operating assets and liabilities:
Decrease in accounts receivable 1,475 1,537
Decrease (increase) in inventories (1,453) 1,231
Increase in prepaid expenses (7,851) (7,930)
Increase (decrease) in accounts payable and accrued expenses 5,940 (16,101)
Increase in income taxes payable 73 246
-------- --------
3,593 (16,092)
Decrease attributable to disposal of Florida retail operations (632) (11,994)
-------- --------
Net cash provided by (used in) operating activities 2,961 (28,086)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,458) (1,796)
Proceeds from disposal of property and equipment 18 1
Proceeds from disposal of Florida retail operations 10,000 11,500
Proceeds from sales of marketable securities 89 --
-------- --------
Net cash provided by investing activities 7,649 9,705
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments from notes payable to a related party (10,000) --
Principal payments on long-term debt (61,227) (7,025)
Principal payments on short-term debt (17,750) --
Principal payments on capital lease obligations (183) (256)
Proceeds from long-term borrowing 76,712 13,700
Proceeds from capital contribution -- 5,000
-------- --------
Net cash provided by (used in) financing activities (12,448) 11,419
-------- --------
Net decrease in cash and cash equivalents (1,838) (6,962)
Cash and cash equivalents at beginning of period 12,148 6,998
-------- --------
Cash and cash equivalents at end of period $ 10,310 $ 36
======== ========
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 2,920 $ 11,138
Income taxes (net of refunds) (983) 144
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(UNAUDITED)
NOTE 1 -- INTERIM FINANCIAL STATEMENTS
With respect to the unaudited financial information for each of the 16
weeks ended May 17, 1997 and May 18, 1996, it is the opinion of management of
Pueblo Xtra International, Inc. and its wholly-owned subsidiaries (collectively,
the "Company") that the adjustments necessary to prepare a fair statement of the
results for such interim periods have been included. Such adjustments were of a
normal and recurring nature, or resulted from the strategic measures implemented
by the Company in the 16 weeks ended May 18, 1996 as described in Note
(2)--Unusual Charges of the audited consolidated financial statements contained
in the Company's Form 10-K for the fiscal year ended January 25, 1997 filed with
the Securities and Exchange Commission (hereinafter referred to as the "Form
10-K"). The unaudited financial information should be read in conjunction with
the Company's Form 10-K. The consolidated balance sheet at January 25, 1997
included herein has been derived from the audited consolidated financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
Operating results for the 16-week periods ended May 17, 1997 and May
18, 1996 are not necessarily indicative of results that may be expected for the
full fiscal years. The Company's fiscal year ends on the last Saturday in
January.
NOTE 2 -- INVENTORY
The results of the Company's operations reflect the application of the
last-in, first-out ("LIFO") method of valuing certain inventories of grocery,
non-food and dairy products. Since an actual valuation of inventories under the
LIFO method is only made at the end of a fiscal year based on inventory levels
and costs at that time, interim LIFO calculations are based on management's
estimates of expected year-end inventory levels and costs and are subject to
year-end adjustments.
NOTE 3 -- DEBT
On April 29, 1997, the Company entered into a refinancing plan (the
"Refinancing Plan"), which included the issuance and sale of $85.0 million
principal amount of 9 1/2% Senior Notes Due 2003 (the "Notes"), the terms of
which are substantially identical to those of the Company's $180 million
principal amount of 9 1/2% Senior Notes (the "Existing Notes"), which were
issued in 1993. The net proceeds from the sale of the Notes of approximately
$73.9 million after deducting expenses, together with available cash of the
Company, were used to repay the senior secured indebtedness outstanding under
the Bank Credit Agreement dated July 31, 1993 (the "Old Bank Credit Agreement").
In connection with the Refinancing Plan, the Company entered into an amended
bank credit agreement (the "New Bank Credit Agreement"), which provides for a
$65.0 million revolving credit facility with less restrictive covenants compared
to the Old Bank Credit Agreement. After the issuance of standby letters of
credit in the amount of $23.3 million, the Company has borrowing availability on
a revolving basis of $41.7 million under the New Bank Credit Agreement. This
transaction resulted in an extraordinary loss of $2.4 million, net of deferred
income taxes of $1.6 million, by reason of the early extinguishment of debt. As
of May 17, 1997, the Company had not borrowed under the revolver of the New Bank
Credit Agreement.
In connection with the Refinancing Plan, on April 29, 1997, the Company
satisfied $10 million of indebtedness payable to a related party by transferring
its interest in two real estate properties from its closed Florida operations to
such related party.
-7-
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW AND BASIS OF PRESENTATION
During fiscal 1996, the Company determined to discontinue its retail
operations in Florida. The effective date of the Florida closing was December
30, 1995. All eight of the Florida stores were closed during the 16-week period
ended May 18, 1996. The following table presents selected comparative operating
data of the Company for the 16 weeks ended May 17, 1997 and May 18, 1996 after
excluding the Florida retail division (the "Continuing Business"):
<TABLE>
<CAPTION>
16 Weeks Ended
--------------------------
May 17, May 18,
1997 1996 (1)
------------ ----------
<S> <C> <C>
SELECTED OPERATING RESULTS
(as a percentage of sales)
Gross profit 26.1% 25.8%
Selling, general and
administrative expenses 20.1 20.1
EBITDA (2) 6.0 5.7
Depreciation and amortization 4.1 3.9
Operating profit (loss) 2.0 1.9
Loss before income taxes (1.0) (1.2)
Net loss (1.6) (1.0)
</TABLE>
- - ---------------------
(1) Excludes net sales, cost of goods sold, selling, general and
administrative expenses, and income tax benefit from Florida
operations for the 16 weeks ended May 18, 1996.
(2) Represents income before interest, income taxes, sundry, depreciation
and amortization and unusual charges. EBITDA, as disclosed herein, is
neither a measurement pursuant to generally accepted accounting
principles (GAAP) nor a measurement of operating results and is
included for informative purposes only.
RESULTS OF OPERATIONS
As the market leader in Puerto Rico and the U.S. Virgin Islands, the
Company operated a total of 50 supermarkets and 31 Blockbuster video stores as
of May 17, 1997. The history of store openings, closings and conversions
through May 17, 1997, since the end of the same period of the prior year, is
set forth below:
<TABLE>
<S> <C>
Stores in operation at May 18, 1996 74
Stores opened:
Supermarkets --
Blockbuster video stores 9
Stores closed (2)
---
Stores in operation at May 17, 1997 81
===
</TABLE>
-8-
<PAGE> 9
<TABLE>
<CAPTION>
May 17, May 18,
1997 1996
---- ----
<S> <C> <C>
Store composition at quarter-end:
Xtra stores 30 26
Pueblo supermarkets 20 26
Blockbuster video stores 31 22
By location:
Puerto Rico 73 67
U.S. Virgin Islands 8 7
</TABLE>
Net sales for the 16-week period ended May 17, 1997 decreased by $19.9
million, or 6.3%, in comparison to the same period last year. Contributing to
the overall sales reduction was the closing of the Florida retail operations,
which had sales of $6.7 million for the 16 weeks ended May 18, 1996. Net sales
from the Continuing Business decreased by $13.2 million, or 4.2%, in comparison
to the same period last year. Same store sales for the 16-week period decreased
by 2.9%. This decline reflected a same store sales decrease of 2.8% in the
Company's Puerto Rico supermarket operations as competition continued to
adversely affect the operating division's sales performance. The Company's
Blockbuster operations experienced a same store decrease of 9.1% for the 16
weeks ended May 17, 1997 as the eight stores that converted from Video Clubs to
Blockbuster stores have temporarily affected the sales performance of the
existing stores.
Gross profit margin for the 16-week period ended May 17, 1997, as a
percentage of sales, was 26.1% or 0.7% above the 25.4% for the same period last
year. Gross margin for the Continuing Business for the 16-week period ended May
17, 1997 increased 0.3% from 25.8% to 26.1%. The increase in gross profit
margin was primarily due to the favorable margin in the meat department due to
a reduction in shrink and the implementation of certain performance initiatives.
Selling, general and administrative expenses for the 16-week period
ended May 17, 1997 decreased by $7.3 million, or 10.9%, in comparison to the
same period last year. Contributing to the overall decrease in selling, general
and administrative expenses was the closing of the Florida retail operations,
which had selling expenses of $4.6 million for the 16 weeks ended May 18, 1996.
Selling, general and administrative expenses from the Continuing Business
decreased by $2.7 million, or 4.3%, in comparison to the same period last year.
This decrease was due primarily to a major advertising campaign launched in
Puerto Rico during the 16 weeks ended May 18, 1996. Also contributing to the
decrease was the elimination of 440 store employees in January 1997 due to the
reorganization of labor scheduling practices and on-going labor control
programs.
Depreciation and amortization for the 16 weeks ended May 17, 1997 was
comparable to that of the same period of the prior year.
Interest expense, net of interest and investment income, decreased by
$0.7 million, or 7.1%, for the 16 weeks ended May 17, 1997 compared to the same
period last year due primarily to a decrease in the average amount of
borrowings outstanding during the period.
The income tax benefit for the 16 weeks ended May 17, 1997 decreased
by $1.6 million in comparison to the same period last year due primarily to the
operating losses incurred from the Florida operations for the 16 weeks ended
May 18, 1996.
The Company recorded a $2.4 million, net of deferred income taxes of
$1.6 million, extraordinary loss by reason of the early extinguishment of debt
due to the Refinancing Plan described in Note (3) - Debt of the notes to the
Company's consolidated financial statements in this Form 10-Q. The extraordinary
-9-
<PAGE> 10
loss pertains to the unamortizied portion of deferred Bank Credit Agreement
costs associated with the Old Bank Credit Agreement.
At the beginning of fiscal 1997, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets to Be Disposed Of".
Pursuant to the requirements of this statement, the Company's results of
operations for the 16 weeks ended May 18, 1996 included results of the
Florida stores for the phase-out period in fiscal 1997. The recognition of
these operations negatively affected the Company's operating profit by $4.1
million for the 16 weeks ended May 18, 1996. Furthermore, in accordance with
SFAS No. 121, the Company recorded the cumulative effect of a change in
accounting principle of $2.7 million (net of deferred income taxes of $1.5
million), the effect of which was to offset the Florida operating losses
recorded for the 16 weeks ended May 18, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Company operations have historically provided a sufficient cash flow
which, along with the available credit facility, provided adequate liquidity to
the Company's operational needs.
On April 29, 1997, the Company entered into the Refinancing Plan in
connection with which it issued the Notes. The net proceeds from the sale of the
Notes of approximately $73.9 million after deducting expenses, together with
available cash of the Company, were used to repay the senior secured
indebtedness outstanding under the Old Agreement. In connection with the
Refinancing Plan, the Company entered into the New Bank Credit Agreement, which
provides for a $65.0 million revolving credit facility with less restrictive
covenants compared to the Old Bank Credit Agreement. After the issuance of
standby letters of credit in the amount of $23.3 million, the Company has
borrowing availability on a revolving basis of $41.7 million under the New Bank
Credit Agreement. As of May 17, 1997, the Company had not borrowed under the
revolver of the New Bank Credit Agreement.
Net cash provided by (used in) operating activities was $3.0 million
and $(28.1) million for the 16 weeks ended May 17, 1997 and May 18, 1996,
respectively. The increase in net cash provided by operating activities was due
to the decrease in net cash outlay related to the closing of the Florida retail
operations for the 16 weeks ended May 17, 1997 in comparison to the same period
last year.
Working capital during the 16 weeks ended May 17, 1997 increased from
a deficit of $56.2 million at January 25, 1997 to a deficit of $41.3 million at
May 17, 1997. The improvement in working capital was primarily attributable to
the repayment of certain obligations associated with the Refinancing Plan
described above.
Net cash provided by investing activities was $7.6 million and $9.7
million for the 16 weeks ended May 17, 1997 and May 18, 1996, respectively. The
Company received $11.5 million for the sale of two Florida Xtra stores and
certain equipment during the 16 weeks ended May 18, 1996. Total capital
expenditures, net of proceeds from disposals, were $2.4 million and $1.8
million for the 16 weeks ended May 17, 1997 and May 18, 1996, respectively.
Net cash provided by (used in) financing activities was $(12.4)
million and $11.4 million for the 16 weeks ended May 17, 1997 and May 18, 1996,
respectively. On April 29, 1997, the Company entered into the Refinancing Plan
which provided net proceeds of $76.7 million before deducting expenses. These
proceeds together with available cash were used to repay $63.0 million in term
loans and $16.0 million in revolving
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<PAGE> 11
loans under the Old Bank Credit Agreement. In connection with the Refinancing
Plan the Company also satisfied $10.0 million of indebtedness payable to a
related party.
Outstanding borrowings with a governmental agency of Puerto Rico from
the issuance of industrial revenue bonds were $17.5 million as of May 17, 1997,
including $7.5 million of principal payments due in the current fiscal year.
Management anticipates that the principal payments will be financed by
operations.
In early November 1996, the Company reached a settlement (the
"Settlement") of the Premium Sales litigation described in Item 3, Legal
Proceedings, in the Company's Form 10-K for the year ended January 25, 1997.
The settlement has subsequently been confirmed and approved by the court. The
terms of the Settlement do not materially affect the Company's financial
position or results of operations.
The Company believes that the cash flows generated by its normal
business operations together with its available credit facility will be
adequate for its liquidity and capital resource needs.
IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS
The inflation rate for food prices continues to be lower than the
overall increase in the U.S. Consumer Price Index. The Company's primary costs,
products and labor, can be affected by inflation. Increases in inventory costs
can typically be passed on to the customer. Other cost increases must be
recovered through operating efficiencies and improved gross margins. Currency
in Puerto Rico and the U.S. Virgin Islands is the U.S. dollar. As such, the
Company has no exposure to foreign currency fluctuations.
FORWARD LOOKING STATEMENTS
Certain of the matters discussed under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Form 10-Q contain certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, concerning the
Company's belief that the cash flows generated by its normal business operations
together with its available credit facility will be adequate for its liquidity
and capital resource needs. These statements are based on the Company's
expectations and are subject to various risks and uncertainties. Actual results
could differ materially from those anticipated due to a number of factors,
including but not limited to the Company's substantial indebtedness and high
degree of leverage, which will continue with the Refinancing Plan (including
limiting effects on ability to obtain additional financing and trade credit, to
apply operating cash flow for purposes in addition to debt service, to respond
to price competition in economic downturns and to dispose of assets pledged to
secure such indebtedness or to freely use proceeds of any such dispositions),
the Company's limited geographic markets and competitive conditions in the
markets in which the Company operates and buying patterns of consumers.
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<PAGE> 12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 - Amended and Restated Credit Agreement, dated as of April
29, 1997, among Pueblo Xtra International, Inc., Pueblo
International, Inc., Xtra Super Food Centers, Inc.,
various lending institutions, The Bank of Nova Scotia, as
Administrative Agent, and NationsBank, N.A. (South), as
Syndication Agent.
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
On April 4, 1997, the Company filed a current report on Form 8-K
with the Commission under Item 5 of such form a press release to
announce the amendment of the Company's bank credit facility.
On April 7, 1997, the Company filed a current report on Form 8-K
with the Commission under Item 5 of such form a press release to
announce fiscal 1997 earnings.
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<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PUEBLO XTRA INTERNATIONAL, INC.
Dated: June 20, 1997 /s/ Daniel Cammarata
-------------------------------
Daniel Cammarata
Controller
and Chief Accounting Officer
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<PAGE> 14
EXHIBIT 10.1
================================================================================
$65,000,000
AMENDED AND RESTATED
CREDIT AGREEMENT
among
PUEBLO XTRA INTERNATIONAL, INC.,
PUEBLO INTERNATIONAL, INC.,
XTRA SUPER FOOD CENTERS, INC.,
VARIOUS LENDING INSTITUTIONS,
THE BANK OF NOVA SCOTIA
AS ADMINISTRATIVE AGENT
and
NATIONSBANK, N.A. (SOUTH)
AS SYNDICATION AGENT
-----------------------------
Dated as of April 29, 1997
-----------------------------
================================================================================
<PAGE> 15
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. Amount and Terms of Credit...................................... 1
1.01 Commitments...................................................... 1
1.02 Minimum Borrowing Amounts, etc................................... 3
1.03 Notice of Borrowing.............................................. 3
1.04 Disbursement of Funds............................................ 5
1.05 Notes............................................................ 6
1.06 Conversions...................................................... 7
1.07 Pro Rata Borrowings.............................................. 7
1.08 Interest......................................................... 7
1.09 Interest Periods................................................. 8
1.10 Increased Costs, Illegality, etc................................. 9
1.11 Compensation.....................................................12
1.12 Change of Lending Office.........................................13
1.13 Notice of Certain Costs..........................................13
1.14 Replacement of Banks.............................................13
SECTION 2. Letters of Credit...............................................14
2.01 Letters of Credit................................................15
2.02 Letters of Credit Participations.................................16
2.03 Letter of Credit Requests; Notices of
Issuance.......................................................19
2.04 Agreement to Repay Letter of Credit
Drawings.......................................................19
2.05 Increased Costs .................................................20
SECTION 3. Fees; Commitments...............................................21
3.01 Fees.............................................................21
3.02 Voluntary Reduction of Commitments...............................23
3.03 Mandatory Reductions of Commitments, etc.........................23
SECTION 4. Payments....................................................... 24
4.01 Voluntary Prepayments........................................... 24
4.02 Mandatory Prepayments.......................................... 25
(A) Requirements..............................................25
(B) Application...............................................25
4.03 Method and Place of Payment......................................26
4.04 Net Payments.....................................................26
SECTION 5. Conditions Precedent............................................29
5.01 Conditions Precedent to Restatement
Effective Date.,.................................................29
(a) Effectiveness; Notes......................................29
(b) Opinions of Counsel.......................................29
</TABLE>
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<PAGE> 16
<TABLE>
<S> <C> <C>
(c) Corporate Proceedings......................................29
(d) Original Credit Agreement..................................30
(e) Issuance of PXI Senior Notes...............................30
(f) Pledge Agreement...........................................30
(g) Subsidiary Guaranty........................................32
(h) Security Agreements........................................32
(i) Mortgages; Intercompany Mortgages;
Title Insurance; Surveys; Etc .............................33
(j) Solvency Certificate.......................................34
(k) Insurance Policies.........................................34
(l) Consent Letter.............................................35
(m) Payment of Fees............................................35
(n) Adverse Change.............................................35
(o) Litigation.................................................35
(p) Depositary Account Agreement...............................35
5.02 Conditions Precedent to All Credit Events .......................35
Section 6. Representations, Warranties and
Agreements....................................................36
6.01 Corporate Status.................................................37
6.02 Corporate Power and Authority....................................37
6.03 No Violation.....................................................37
6.04 Litigation.......................................................37
6.05 Use of Proceeds..................................................38
6.06 Governmental Approvals...........................................38
6.07 Investment Company Act...........................................38
6.08 Public Utility Holding Company Act...............................38
6.09 True and Complete Disclosure.....................................38
6.10 Financial Condition; Financial Statements........................39
6.11 Security Interests...............................................40
6.12 Tax Returns and Payments.........................................38
6.13 Compliance with ERISA............................................39
6.14 Subsidiaries.....................................................40
6.15 Patents, etc.....................................................41
6.16 Compliance with Statutes, etc....................................41
6.17 Properties.......................................................42
6.18 Labor Relations; Collective Bargaining
Agreements.....................................................44
6.19 Indebtedness.....................................................45
6.20 Restrictions on Subsidiaries.....................................45
6.21 PXI Senior Notes, etc............................................45
SECTION 7. Affirmative Covenants............................................46
7.01 Information Covenants............................................46
(a) Annual Financial Statements................................46
(b) Quarterly Financial Statements.............................46
(c) Monthly Reports............................................47
(d) Budgets; etc...............................................47
(e) Officer's Certificates.....................................47
</TABLE>
(ii)
<PAGE> 17
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(c) Notice of Default or Litigation............................47
(d) Environmental Matters......................................48
(e) Other Information..........................................48
7.02 Books, Records and Inspections...................................49
7.03 Payment of Taxes.................................................49
7.04 Corporate Franchises.............................................49
7.05 Compliance with Statutes, etc....................................50
7.06 ERISA............................................................51
7.07 Good Repair......................................................52
7.08 End of Fiscal Years; Fiscal Quarters.............................53
7.09 Maintenance of Property; Insurance...............................53
7.10 Additional Security; Further Assurances..........................53
7.11 Maintenance of Corporate Separateness............................55
Section 8. Negative Covenants..............................................55
8.01 Consolidation, Merger, Sale or Purchase of
Assets, etc.............................. .....................55
8.02 Liens............................................................57
8.03 Indebtedness.....................................................59
8.04 Capital Expenditures.............................................60
8.05 Advances, Investments and Loans..................................60
8.06 Dividends, etc...................................................62
8.07 Transactions with Affiliates.....................................63
8.08 Changes in Business..............................................63
8.09 EBITDA to Total Cash Interest Expense............................63
8.10 Consolidated Indebtedness to EBITDA..............................64
8.11 Senior Secured Debt to EBITDA....................................65
8.12 Limitation on Voluntary Payments; Preferred
Stock..........................................................65
8.13 Issuance of Subsidiary Stock.....................................66
8.14 Limitation on Restrictions Affecting
Subsidiaries...................................................66
SECTION 9. Events of Default...............................................66
9.01 Payments.........................................................66
9.02 Representations, etc.............................................67
9.03 Covenants........................................................67
9.04 Default Under Other Agreements...................................67
9.05 Bankruptcy, etc..................................................67
9.06 ERISA............................................................68
9.07 Security Documents...............................................69
9.08 Guaranties.......................................................69
9.09 Judgments........................................................69
9.10 Change of Control................................................69
SECTION 10. Definitions.....................................................70
</TABLE>
(iii)
<PAGE> 18
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 11. The Administrative Agent, etc...................................94
11.01 Appointment......................................................94
11.02 Delegation of Duties.............................................95
11.03 Exculpatory Provisions...........................................95
11.04 Reliance by Administrative Agent, etc............................96
11.05 Notice of Default................................................96
11.06 Non-Reliance on Administrative Agent and
Other Banks.....................................................96
11.07 Indemnification..................................................97
11.08 Individual Capacity..............................................98
11.09 Resignation; Removal; Successors.................................98
SECTION 12. Miscellaneous...................................................98
12.01 Payment of Expenses, etc.........................................98
12.02 Right of Setoff..................................................99
12.03 Notices.........................................................100
12.04 Benefit of Agreement............................................100
12.05 No Waiver; Remedies Cumulative..................................102
12.06 Payments Pro Rata...............................................103
12.07 Calculations; Computations......................................103
12.08 Governing Law; Submission to Jurisdiction;
Venue..........................................................104
12.09 Counterparts....................................................105
12.10 Headings Descriptive............................................105
12.11 Amendment or Waiver.............................................105
12.12 Survival........................................................106
12.13 Domicile of Loans...............................................106
12.14 Registry........................................................106
SECTION 13. Guaranty.......................................................107
13.01 The Guaranty....................................................107
13.02 Bankruptcy......................................................108
13.03 Nature of Liability.............................................108
13.04 Independent Obligation..........................................108
13.05 Authorization...................................................109
13.06 Reliance........................................................110
13.07 Subordination...................................................110
13.08 Waiver..........................................................110
13.09 Limitation on Enforcement.......................................112
13.10 Rights of Contribution..........................................112
13.11 Post Closing Actions............................................112
(a) Depository Account Agreement.............................112
(b) Mortgage Amendments......................................113
(c) Intellectual Property....................................113
(d) Insurance Certificates...................................113
</TABLE>
(iv)
<PAGE> 19
SCHEDULE I - Banks/Commitments
SCHEDULE II - Existing Letters of Credit
SCHEDULE III - Liabilities
SCHEDULE IV - Reportable Events
SCHEDULE V - Subsidiaries
SCHEDULE VI - Real Property
SCHEDULE VII - Collective Bargaining Agreements
SCHEDULE VIII - Permitted Existing Indebtedness
SCHEDULE IX - Insurance
SCHEDULE X - Permitted Liens
SCHEDULE XI - Existing Investments
EXHIBIT A-1 - Revolving Note
EXHIBIT A-2 - Swingline Note
EXHIBIT B - Letter of Credit Request
EXHIBIT C - Officer's Certificate
EXHIBIT D-1 - Opinion of Milbank, Tweed, Hadley
& McCloy
EXHIBIT D-2 - Opinion of White & Case
EXHIBIT E-1 - PXI Pledge Agreement
EXHIBIT E-2 - Borrower Pledge Agreement
EXHIBIT E-3 - Xtra Pledge Agreement
EXHIBIT E-4 - XM Pledge Agreement
EXHIBIT F - Subsidiary Guaranty
EXHIBIT G-1 - Borrower Security Agreement
EXHIBIT G-2 - Subsidiary Security Agreement
EXHIBIT H - Solvent Certificate
EXHIBIT I - Consent Letter
EXHIBIT J-1 - Subordinated Intercompany Real Estate
Note
EXHIBIT J-2 - Subordinated Intercompany Notes
EXHIBIT K - Assignment Agreement
EXHIBIT L - Depositary Account Agreement
EXHIBIT M - Cancelled Subordinated Note
(v)
<PAGE> 20
AMENDMENT AND RESTATEMENT dated as of April 29, 1997 to Credit
Agreement, dated as of July 21, 1993, among PUEBLO XTRA INTERNATIONAL, INC., a
Delaware corporation ("PXI"), PUEBLO INTERNATIONAL, INC., a Delaware corporation
(the "Borrower"), XTRA SUPER FOOD CENTERS, INC., a Delaware corporation
("Xtra"), the lending institutions listed from time to time on Schedule I hereto
(each a "Bank" and, collectively, the "Banks"), THE BANK OF NOVA SCOTIA as
Administrative Agent and NATIONSBANK, N.A. (SOUTH) as Syndication Agent. Unless
otherwise defined herein, all capitalized terms used herein and defined in
Section 10 are used herein as so defined.
W I T N E S S E T H :
WHEREAS, the Borrower, PXI, Xtra and certain financial institutions
are party to a Credit Agreement dated as of July 21, 1993 (as the same has been
amended, modified or supplemented prior to the Restatement Effective Date, the
"Original Credit Agreement"); and
WHEREAS, the parties hereto wish to amend and restate the Original
Credit Agreement as herein provided;
NOW, THEREFORE, the parties hereto agree that the Original Credit
Agreement shall be and hereby is amended and restated in its entirety as
follows, provided if the Restatement Effective Date has not occurred on or prior
to June 30, 1997 this amendment and restatement shall be void and of no further
effect, with the Original Credit Agreement to remain in effect;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Amount and Terms of Credit.
1.01 Commitments. (A) Subject to and upon the terms and conditions
herein set forth, each Bank severally agrees to make a loan or loans (each a
"Revolving Loan" and, collectively, the "Revolving Loans") to the Borrower,
which Loans (i) may be incurred by the Borrower at any time and from time to
time on and after the Restatement Effective Date and prior to the Maturity Date,
(ii) except as hereinafter provided, may, at the option of the Borrower, be
incurred and maintained as, and/or converted into, Base Rate Loans or
<PAGE> 21
Eurodollar Loans, provided that all Revolving Loans made by all Banks pursuant
to the same Borrowing shall, unless otherwise specifically provided herein,
consist entirely of Loans of the same Type, (iii) may be repaid and reborrowed
in accordance with the provisions hereof, (iv) shall not exceed in aggregate
principal amount for any Bank at any time outstanding the amount which, when
combined with such Bank's Adjusted Percentage of the sum of (x) the L/C
Outstandings plus (y) the outstanding principal amount of Swingline Loans, in
each case at such time, equals the Revolving Commitment of such Bank at such
time and (v) shall not exceed in aggregate principal amount at any time
outstanding the amount which, when added to the outstanding principal amount of
Swingline Loans and the L/C Outstandings, would equal the sum of (x) the
Adjusted Total Revolving Commitment plus (y) the outstanding principal amount of
Revolving Loans of Defaulting Banks.
(B) Subject to and upon the terms and conditions herein set forth,
Scotiabank, in its individual capacity, agrees to make at any time and from time
to time after the Restatement Effective Date and prior to the Swingline
Termination Date, a loan or loans to the Borrower (each a "Swingline Loan," and
collectively the "Swingline Loans"), which Swingline Loans (i) shall be made and
maintained as Base Rate Loans, (ii) shall have the benefit of the provisions of
Section 1.01(C), (iii) may be repaid and reborrowed in accordance with the
provisions hereof, (iv) shall not exceed in aggregate principal amount at any
time outstanding, when combined with the aggregate principal amount of all
Revolving Loans made by Non-Defaulting Banks then outstanding and all L/C
Outstandings at such time, the Adjusted Total Revolving Commitment then in
effect and (v) shall not exceed in aggregate principal amount at any time
outstanding the Maximum Swingline Amount. Scotiabank will not make a Swingline
Loan after it has received written notice from the Borrower, either Agent or the
Required Banks that a Default or Event of Default exists until such time as
Scotiabank shall have received written notice of (x) rescission of all such
notices from the party or parties originally delivering same or (y) the waiver
of such Default or Event of Default by the Required Banks.
(C) On any Business Day, Scotiabank may, in its sole discretion, give
notice to the Banks (with an information copy to the Borrower, provided that the
failure to give such notice to the Borrower shall in no way affect the validity
and effectiveness of such notice) that its outstanding Swingline Loans shall be
funded with a Borrowing of
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<PAGE> 22
Revolving Loans (provided that each such notice shall be deemed to have been
automatically given upon the occurrence of an Event of Default under Section
9.05), in which case a Borrowing of Revolving Loans constituting Base Rate Loans
(each such Borrowing, a "Mandatory Borrowing") shall be made on the immediately
succeeding Business Day by all Banks pro rata based on each Bank's Adjusted
Percentage, and the proceeds thereof shall be applied directly to repay
Scotiabank for such outstanding Swingline Loans. Each Bank hereby irrevocably
agrees to make such Base Rate Loans upon one Business Day's notice pursuant to
each Mandatory Borrowing in the amount and in the manner specified in the
preceding sentence and on the date specified in writing by Scotiabank
notwithstanding (i) that the amount of the Mandatory Borrowing may not comply
with the Minimum Borrowing Amount otherwise required hereunder, (ii) whether any
conditions specified in Section 5 are then satisfied, (iii) whether a Default or
an Event of Default (including an Event of Default under Section 9.05) has
occurred and is continuing, (iv) the date of such Mandatory Borrowing and (v)
any reduction in the Adjusted Total Revolving Commitment or the Total Revolving
Commitment after any such Swingline Loans were made. In the event that any
Mandatory Borrowing cannot for any reason be made on the date otherwise required
above (including, without limitation, as a result of the commencement of a
proceeding under the Bankruptcy Code in respect of the Borrower), each Bank
(other than Scotiabank) hereby agrees that it shall forthwith purchase from
Scotiabank (without recourse or warranty) such assignment of the outstanding
Swingline Loans as shall be necessary to cause the Banks to share in such
Swingline Loans ratably based upon their respective Adjusted Percentages,
provided that all interest payable on the Swingline Loans shall be for the
account of Scotiabank until the date the respective assignment is purchased and,
to the extent attributable to the purchased assignment, shall be payable to the
Bank purchasing same from and after such date of purchase.
1.02 Minimum Borrowing Amounts,etc. The aggregate principal amount
of each Borrowing shall not be less than the Minimum Borrowing Amount (except
that Mandatory Borrowings shall be made in the amounts required by Section
1.01(C)). More than one Borrowing may be incurred on any day, provided that at
no time shall there be outstanding more than ten Borrowings of Eurodollar Loans.
1.03 Notice of Borrowing. (a) The Revolving Loans to be incurred by
the Borrower on the Restatement Effective Date shall be set forth in a written
notice (or telephonic notice promptly confirmed in writing) delivered by
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<PAGE> 23
the Borrower to the Administrative Agent at its Notice Office no later than
12:00 Noon (New York time) on the Business Day immediately prior to the
Restatement Effective Date. Whenever the Borrower desires to incur Revolving
Loans after the Restatement Effective Date, it shall give the Administrative
Agent at its Notice Office, written notice (or telephonic notice promptly
confirmed in writing) of each Borrowing of Eurodollar Loans prior to 12:00 Noon
(New York time) on the third Business Day preceding the date of the proposed
Borrowing and written notice (or telephonic notice promptly confirmed in
writing) of each Borrowing of Base Rate Loans to be made hereunder prior to
10:00 A.M. (New York time) on the date of the proposed Borrowing. Each of the
foregoing notices (each, together with each notice of a Borrowing of Swingline
Loans, a "Notice of Borrowing") shall be irrevocable and shall specify (i) the
aggregate principal amount of the Revolving Loans to be incurred, (ii) the date
of incurrence (which shall be a Business Day) and (iii) whether the respective
incurrence shall consist of Base Rate Loans or, to the extent otherwise
permitted, Eurodollar Loans and, if Eurodollar Loans, the Interest Period to be
initially applicable thereto. The Administrative Agent shall promptly give each
Bank written notice (or telephonic notice promptly confirmed in writing) of each
proposed Borrowing, of the proportionate share thereof of each Bank and of the
other matters covered by the Notice of Borrowing.
(b) Whenever the Borrower desires to incur a Swingline Loan
hereunder, it shall give Scotiabank not later than 12:00 Noon (New York time) on
the day such Swingline Loan is to be incurred, written notice or telephonic
notice promptly confirmed in writing of such Swingline Loan. Each such notice
shall be irrevocable and specify in each case (i) the date of incurrence (which
shall be a Business Day) and (ii) the principal amount of the Swingline Loan to
be incurred.
(c) Mandatory Borrowings shall be made upon the notice specified in
Section 1.01(C), with the Borrower irrevocably agreeing, by its incurrence of
any Swingline Loan, to the making of Mandatory Borrowings as set forth in such
Section.
(d) Without in any way limiting the obligation of the Borrower to
confirm in writing any notice it may give hereunder by telephone, the
Administrative Agent may act prior to receipt of written confirmation without
liability upon the basis of such telephonic notice, believed by the
Administrative Agent in good faith to be from an Authorized
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<PAGE> 24
Officer of the Borrower as a person entitled to give telephonic notices under
this Agreement on behalf of the Borrower. In each such case the Borrower hereby
waives the right to dispute the Administrative Agent's record of the terms of
any such telephonic notice.
1.04 Disbursement of Funds. (a) No later than 1:00 P.M. (2:00 P.M.
in the case of Swingline Loans) (New York time) on the date specified in each
Notice of Borrowing, each Bank will make available its pro rata share of each
Borrowing requested to be made on such date (or, in the case of Swingline Loans,
Scotiabank shall make available the full amount thereof) in the manner provided
below. Except as otherwise agreed among the Borrower and the Agents with respect
to the disbursement of funds on the Restatement Effective Date, all amounts
shall be made available to the Administrative Agent in U.S. dollars and
immediately available funds at the Payment Office and the Administrative Agent
promptly will make available to the Borrower by depositing to its account at the
Payment Office the aggregate of the amounts so made available in the type of
funds received. Unless the Administrative Agent shall have been notified by any
Bank prior to the date of Borrowing that such Bank does not intend to make
available to the Administrative Agent its portion of the Borrowing or Borrowings
to be made on such date, the Administrative Agent may assume that such Bank has
made such amount available to the Administrative Agent on such date of
Borrowing, and the Administrative Agent, in reliance upon such assumption, may
(in its sole discretion and without any obligation to do so) make available to
the Borrower a corresponding amount. If such corresponding amount is not in fact
made available to the Administrative Agent by such Bank and the Administrative
Agent has made available same to the Borrower, the Administrative Agent shall be
entitled to recover such corresponding amount from such Bank. If such Bank does
not pay such corresponding amount forthwith upon the Administrative Agent's
demand therefor, the Administrative Agent shall promptly notify the Borrower,
and the Borrower shall pay such corresponding amount to the Administrative
Agent. The Administrative Agent shall also be entitled to recover from such Bank
or the Borrower, as the case may be, interest on such corresponding amount in
respect of each day from the date such corresponding amount was made available
by the Administrative Agent to the Borrower to the date such corresponding
amount is recovered by the Administrative Agent, at a rate per annum equal to
(x) if to be paid by such Bank, the customary rate set by the Administrative
Agent for the correction of errors among banks for each day during the period
consisting of the first three
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Business Days following such date of availability and thereafter at the Base
Rate or (y) if to be paid by the Borrower, the then applicable rate of interest,
calculated in accordance with Section 1.08, for the respective Loans.
(b) Nothing herein shall be deemed to relieve any Bank from its
obligation to fulfill its commitments hereunder to make Loans or to prejudice
any rights which any Borrower may have against any Bank as a result of any
default by such Bank hereunder.
1.05 Notes. (a) The Borrower's obligation to pay the principal of,
and interest on, the Loans made to it by each Bank shall be evidenced (i) if
Revolving Loans, by a promissory note duly executed and delivered by the
Borrower substantially in the form of Exhibit A-1, with blanks appropriately
completed in conformity herewith (each a "Revolving Note" and collectively the
"Revolving Notes"), and (ii) if Swingline Loans, by a promissory note duly
executed and delivered by the Borrower substantially in the form of Exhibit A-2
with blanks appropriately completed in conformity herewith (the "Swingline
Note").
(b) The Revolving Note issued to each Bank shall (i) be payable to the
order of such Bank and be dated the Restatement Effective Date, (ii) be in a
stated principal amount equal to the Revolving Commitment of such Bank and be
payable in the principal amount of the Revolving Loans evidenced thereby, (iii)
mature on the Maturity Date, (iv) bear interest as provided in the appropriate
clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans,
as the case may be, evidenced thereby, (v) be subject to mandatory repayment as
provided in Section 4.02 and (vi) be entitled to the benefits of this Agreement
and the other Credit Documents.
(c) The Swingline Note shall (i) be payable to the order of Scotiabank
and be dated the Restatement Effective Date, (ii) be in a stated principal
amount equal to the Maximum Swingline Amount and be payable in the principal
amount of the Swingline Loans evidenced thereby, (iii) mature on the Swingline
Termination Date, (iv) bear interest as provided in Section 1.08(a) and (v) be
entitled to the benefits of this Agreement and the other Credit Documents.
(d) Each Bank will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will, prior to any
transfer of any of its Notes, endorse on the reverse side thereof the
outstanding
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principal amount of Loans evidenced thereby and the last date or dates on which
interest has been paid in respect of the Loans evidenced thereby. Failure to
make any such notation shall not affect the Borrower's obligations in respect of
such Loans, or affect the validity of such transfer by any Bank of such Note.
1.06 Conversions. The Borrower shall have the option to convert on any
Business Day (or as otherwise, and to the extent, agreed to by the Agents), all
or a portion at least equal to the applicable Minimum Borrowing Amount of the
outstanding principal amount of the Revolving Loans into a Borrowing or
Borrowings of another Type of Loan provided that (i) no partial conversion of a
Borrowing of Eurodollar Loans shall reduce the outstanding principal amount of
the Loans pursuant to such Borrowing to less than the Minimum Borrowing Amount
applicable thereto, (ii) Loans may only be converted into Eurodollar Loans if no
Default or Event of Default is in existence on the date of the conversion and
(iii) Borrowings of Eurodollar Loans resulting from this Section 1.06 shall be
limited in number as provided in Section 1.02. Each such conversion shall be
effected by the Borrower giving the Administrative Agent at its Notice Office,
prior to 12:00 Noon (New York time), at least three Business Days (or one
Business Day in the case of a conversion into Base Rate Loans) prior written
notice (or telephonic notice promptly confirmed in writing) (each a "Notice of
Conversion") specifying the Loans to be so converted, the Type of Loans to be
converted into and, if to be converted into a Borrowing of Eurodollar Loans, the
Interest Period to be initially applicable thereto. The Administrative Agent
shall give each Bank prompt notice of any such proposed conversion affecting any
of its Loans.
1.07 Pro Rata Borrowings. All Borrowings of Revolving Loans shall be
made from the Banks pro rata on the basis of their Revolving Commitments,
provided that all Mandatory Borrowings shall be made from the Banks pro rata on
the basis of their Adjusted Percentages. It is understood that no Bank shall be
responsible for any default by any other Bank in its obligation to make or
support Loans hereunder and that each Bank shall be obligated to make or support
the Loans provided to be made or supported by it hereunder, regardless of the
failure of any other Bank to fulfill its commitments hereunder.
1.08 Interest. (a) The unpaid principal amount of each Base Rate Loan
shall bear interest from the date of the Borrowing thereof until maturity
(whether by acceleration
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or otherwise) at a rate per annum which shall at all times be the Base Rate plus
the Base Rate Margin.
(b) The unpaid principal amount of each Eurodollar Loan shall bear
interest from the date of the Borrowing thereof until maturity (whether by
acceleration or otherwise) at a rate per annum which shall at all times be the
relevant Eurodollar Rate plus the Eurodollar Margin.
(c) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Loan shall bear interest at a rate per annum equal
to the Base Rate in effect from time to time plus the sum of (i) 2% and (ii) the
Base Rate Margin, provided that no Loan shall bear interest after maturity
(whether by acceleration or otherwise) at a rate per annum less than 2% plus the
rate of interest applicable thereto at maturity.
(d) Interest shall accrue from and including the date of any Borrowing
to but excluding the date of any repayment thereof and shall be payable in
arrears (i) in respect of each Base Rate Loan, quarterly on the last Business
Day of each calendar quarter, (ii) in respect of each Eurodollar Loan, on the
last day of each Interest Period applicable thereto and, in the case of an
Interest Period of six months on the date occurring three months, after the
first day of such Interest Period and (iii) in respect of each Loan, on any
prepayment (on the amount prepaid), at maturity (whether by acceleration or
otherwise) and, after such maturity, on demand.
(e) All computations of interest hereunder shall be made in accordance
with Section 12.07(b).
(f) The Administrative Agent, upon determining the interest rate for
any Borrowing of Eurodollar Loans for any Interest Period, shall promptly notify
the Borrower and the Banks thereof.
1.09 Interest Periods. At the time the Borrower gives a Notice of
Borrowing or Notice of Conversion in respect of the making of, or conversion
into, a Borrowing of Eurodollar Loans (in the case of the initial Interest
Period applicable thereto) or prior to 12:00 Noon (New York time) on the third
Business Day prior to the expiration of an Interest Period applicable to a
Borrowing of Eurodollar Loans, it shall have the right to elect by giving the
Administrative Agent written notice (or telephonic notice promptly confirmed in
writing) of the Interest Period applicable to such Borrow-
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<PAGE> 28
ing, which Interest Period shall, at the option of such Borrower, be a one, two,
three or six month period. Notwithstanding anything to the contrary contained
above:
(i) the initial Interest Period shall commence on the date of such
Borrowing (including the date of any conversion from a Borrowing of another
Type of Loan) and each Interest Period occurring thereafter in respect of
such Borrowing shall commence on the day on which the next preceding
Interest Period expires;
(ii) if any Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period, such Interest Period shall end on the last Business Day of
such calendar month;
(iii) if any Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, provided that if any Interest Period would
otherwise expire on a day which is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(iv) no Interest Period may be elected if it would extend beyond the
Maturity Date; and
(v) no Interest Period may be elected at any time when a Default or
Event of Default is then in existence.
If upon the expiration of any Interest Period, the Borrower has failed to elect
a new Interest Period to be applicable to the respective Borrowing of Eurodollar
Loans as provided above, or is unable to elect a new Interest Period as a result
of clause (v) above, the Borrower shall be deemed to have elected to convert
such Borrowing into a Borrowing of Base Rate Loans effective as of the
expiration date of such Interest Period.
1.10 Increased Costs, Illegality, etc. (a) In the event that (x) in
the case of clause (i) below, the Administrative Agent or (y) in the case of
clauses (ii) and (iii) below, any Bank shall have determined (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto):
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(i) on any date for determining the Eurodollar Rate for any Interest
Period that, by reason of any changes arising after the Restatement
Effective Date affecting the London interbank Eurodollar market, adequate
and fair means do not exist for ascertaining generally the applicable
interest rate on the basis provided for in the definition of Eurodollar
Rate; or
(ii) at any time, that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect to
any Eurodollar Loans (other than any increased cost or reduction in the
amount received or receivable resulting from the imposition of or a change
in the rate of taxes or similar charges) because of (x) any change since
the Restatement Effective Date in any applicable law, governmental rule,
regulation, guideline, order or request (whether or not having the force of
law) or in the interpretation or administration thereof and including the
introduction of any new law or governmental rule, regulation, guideline,
order or request (such as, for example, but not limited to, a change in
official reserve requirements, but, in all events, excluding reserves
required under Regulation D to the extent included in the computation of
the Eurodollar Rate) and/or (y) other circumstances adversely affecting the
London interbank Eurodollar market or the position of such Bank in such
market; or
(iii) at any time, that the making or continuance of any Eurodollar
Loan has become unlawful by compliance by such Bank in good faith with any
law, governmental rule, regulation, guideline or order (or would conflict
with any such governmental rule, regulation, guideline or order not having
the force of law but with which such Bank customarily complies even though
the failure to comply therewith would not be unlawful), or has become
impracticable as a result of a contingency occurring after the Restatement
Effective Date which adversely affects the London interbank Eurodollar
market;
then, and in any such event, such Bank (or the Administrative Agent in the case
of clause (i) above) shall (x) on such date and (y) within three Business Days
of the date on which such event no longer exists give notice (by telephone
confirmed in writing) to the Borrower and (except in the case of clause (i)) to
the Administrative Agent of such determination (which notice the Administrative
Agent shall promptly transmit to each of the other Banks). Thereafter (x) in the
case of clause (i) above, Eurodollar Loans shall no longer be
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available until such time as the Administrative Agent notifies the Borrower and
the Banks that the circumstances giving rise to such notice by the
Administrative Agent no longer exist, and any Notice of Borrowing or Notice of
Conversion given by the Borrower with respect to Eurodollar Loans, which have
not yet been incurred shall be deemed rescinded, (y) in the case of clause (ii)
above, the Borrower shall pay to such Bank, upon written demand therefor, such
additional amounts (in the form of an increased rate of, or a different method
of calculating, interest or otherwise as such Bank in its sole discretion shall
determine) as shall be required to compensate such Bank for such increased costs
or reductions in amounts receivable hereunder (a written notice as to the
additional amounts owed to such Bank, showing in reasonable detail the basis for
the calculation thereof, submitted to the Borrower by such Bank shall, absent
manifest error, be final and conclusive and binding upon all parties hereto) and
(z) in the case of clause (iii) above, the Borrower shall take one of the
actions specified in Section l.l0(b) as promptly as possible and, in any event,
within the time period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected pursuant to Section 1.10(a)(iii),
shall) either (i) if the affected Eurodollar Loan is then being made pursuant to
a Borrowing, cancel said Borrowing by giving the Administrative Agent telephonic
notice (confirmed promptly in writing) thereof on the same date that Borrower
was notified by a Bank pursuant to Section 1.10(a) or (iii) or (ii) if the
affected Eurodollar outstanding, upon at least three Business Days' notice to
the Administrative Agent, require the affected Bank to convert each such
Eurodollar Loan into a Loan of another Type, provided that if more than one Bank
is affected at any time, then all affected Banks must be treated the same
pursuant to this Section l.l0(b).
(c) If any Bank determines at any time that the adoption or
effectiveness of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or actual
compliance by such Bank with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of in-
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<PAGE> 31
creasing the costs to such Bank to a level above that, or reducing the rate of
return on such Bank's capital or assets as a consequence of its commitments or
obligations hereunder to a level below that, which such Bank could have achieved
but for such adoption, effectiveness, change or compliance (taking into
consideration such Bank's policies with respect to capital adequacy), then from
time to time, upon written demand by such Bank (with a copy to the
Administrative Agent), the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank for such reduction. Each Bank, in
determining additional amounts owing under this Section 1.10(c) will act
reasonably and in good faith and will use averaging and attribution methods
which are reasonable, provided that such Bank's determination of such additional
amounts so performed shall, absent manifest error, be final and conclusive and
binding on all parties hereto. Each Bank, upon determining that any additional
amounts will be payable pursuant to this Section l.l0(c), will give prompt
written notice thereof to the Borrower, which notice shall set forth the basis
of the calculation of such additional amounts, although the failure to give any
such notice shall not release or diminish any of the Borrower's obligations to
pay additional amounts pursuant to this Section l.l0(c) upon receipt of such
notice.
1.11 Compensation. The Borrower shall compensate each Bank, upon its
written request (which request shall set forth the basis for requesting such
compensation), for all reasonable losses, expenses and liabilities (including,
without limitation, any loss, expense or liability incurred by reason of the
liquidation or reemployment of deposits or other funds required by such Bank to
fund its Eurodollar Loans to the Borrower) which such Bank may sustain: (i) if
for any reason (other than a default by such Bank or the Administrative Agent) a
Borrowing of Eurodollar Loans does not occur on a date specified therefor in a
Notice of Borrowing or Notice of Conversion (whether or not withdrawn by the
Borrower or deemed withdrawn pursuant to Section 1.10); (ii) if, for any reason,
any repayment or conversion of any of its Eurodollar Loans occurs on a date
which is not the last day of an Interest Period applicable thereto; (iii) if,
for any reason, any prepayment of any of its Eurodollar Loans is not made on any
date specified in a notice of prepayment given by the Borrower; or (iv) as a
consequence of (x) any other default by the Borrower to repay its Eurodollar
Loans when required by the terms of this Agreement or (y) an election made
pursuant to Section 1.10(b). Calculation of all amounts payable to a Bank with
respect to Eurodollar Loans under this Section 1.11 shall be made as though that
Bank had actually
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<PAGE> 32
funded its relevant Eurodollar Loan through the purchase of a Eurodollar deposit
bearing interest at the Eurodollar Rate in an amount equal to the amount of that
Loan, having a maturity comparable to the relevant Interest Period and through
the transfer of such Eurodollar deposit from an offshore office of that Bank to
a domestic office of that Bank in the United States of America (or if such Bank
has no offshore office, from an offshore office of the Administrative Agent to
the domestic office of the Administrative Agent); provided, however, that each
Bank may fund each of its Eurodollar Loans in any manner it sees fit and the
foregoing assumption shall be utilized only for the calculation of amounts
payable under this Section 1.11.
1.12 Change of Lending Office. Each Bank agrees that, upon the
occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or
(iii), 1.10(c), 2.05 or 4.04 with respect to such Bank, it will, if requested by
the Borrower, use reasonable efforts (subject to overall policy considerations
of such Bank) to designate another lending office of such Bank for any Loans or
Letters of Credit affected by such event, provided that such designation is made
on such terms that such Bank or its respective lending offices suffer no
economic, legal or regulatory disadvantage, with the object of avoiding the
consequence of the event giving rise to the operation of any such Section.
Nothing in this Section 1.12 shall affect or postpone any of the obligations of
the Borrower or the right of any Bank provided in Section 1.10, 2.05 or 4.04.
1.13 Notice of Certain Costs. Notwithstanding anything in this
Agreement to the contrary, to the extent any notice required by Section 1.10 or
2.05 is given by any Bank more than 100 days after the occurrence of the event
giving rise to the additional cost, reduction in amounts or other additional
amounts of the type described in such Section, such Bank shall not be entitled
to compensation under Section 1.10 or 2.05, as the case may be, for any such
amounts incurred or accruing prior to the giving of such notice to the Borrower
or Borrowers.
1.14 Replacement of Banks. (a) If (x) any Bank becomes a Defaulting
Bank or otherwise defaults in its obligations to make Revolving Loans or fund
Unpaid Drawings or (y) any Bank is owed increased costs under Section 1.10(a)
(ii) or (iii), 1.10(c), 2.05 or 4.04, the Borrower shall have the right, in any
such case, if no Event of Default exists and, in the case of clause (y), the
affected Bank has not taken actions to eliminate such increased costs, to
replace
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such Bank (a "Replaced Bank") as a Bank hereunder, with one or more existing
Banks or Eligible Assignees reasonably satisfactory to the Administrative Agent
(collectively, the "Replacement Bank").
(b) In the case of a replacement of a Bank pursuant to this Section
1.14, (I) the Replacement Bank shall enter into one or more Assignment
Agreements as provided for in Section 12.04(b) (and with all fees payable
pursuant to said Section 12.04(b) to be paid by the Replacement Bank) pursuant
to which the Replacement Bank shall acquire all of the Revolving Commitment and
outstanding Revolving Loans of, and the existing participations, if any, in L/C
Outstandings by, the Replaced Bank and, in connection therewith, shall pay to
(x) the Replaced Bank an amount equal to the sum of (A) an amount equal to the
principal of, and all accrued interest on, all outstanding Revolving Loans of
the Replaced Bank, (B) an amount, if any, equal to all Unpaid Drawings that have
been funded by (and not reimbursed to) such Replaced Bank, together with all
then unpaid interest with respect thereto at such time and (C) an amount equal
to all accrued, but theretofore unpaid, Fees owing to the Replaced Bank pursuant
to Section 3.01 and (y) Scotiabank an amount, if any, equal to such Replaced
Bank's Adjusted Percentage (prior to any adjustment thereto described in clause
(y) of the immediately succeeding sentence) of any Unpaid Drawing (which at such
time remains an Unpaid Drawing) to the extent such amount was not theretofore
funded by such Replaced Bank, and (II) all obligations of the Borrower owing to
the Replaced Bank (other than those specifically described in clause (I) above
in respect of which the assignment purchase price has been, or is concurrently
being, paid) shall be paid in full by the Borrower to such Replaced Bank
concurrently with such replacement. Upon the execution of the respective
Assignment Agreements, the payment of amounts referred to in clauses (I) and
(II) above and, if so requested by the Replacement Bank, delivery of a Revolving
Note executed by the Borrower, (x) the Replacement Bank shall become a Bank
hereunder, the Replaced Bank shall cease to constitute a Bank hereunder, except
with respect to indemnification provisions under this Agreement, which shall
survive as to such Replaced Bank and (y) the Adjusted Percentages of the Banks
shall be automatically adjusted at such time to give effect to such replacement.
SECTION 2. Letters of Credit.
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2.01 Letters of Credit. (a) Subject to and upon the terms and
conditions herein set forth, the Borrower may request the Letter of Credit
Issuer at any time and from time to time on or after the Restatement Effective
Date and prior to the Maturity Date to issue, for the account of the Borrower
and in support of commercial and/or trade obligations incurred in the ordinary
course of business, insurance obligations, workers compensation, bonding
obligations in respect of taxes, licenses and similar requirements, support of
the Borrower's AFICA obligations and other obligations (including such other
obligations as specified in the respective Letter of Credit Request and
consented to by the Letter of Credit Issuer, such consent not to be unreasonably
withheld, it being understood that the Letter of Credit Issuer will notify the
Borrower of its withholding any such consent within 24 hours of its receipt of
the respective Letter of Credit Request) of the Borrower, Xtra and/or other
wholly-owned Subsidiaries of PXI, and subject to and upon the terms and
conditions herein set forth the Letter of Credit Issuer agrees to issue from
time to time, irrevocable letters of credit so requested by the Borrower in such
form as may be approved by the Letter of Credit Issuer in its sole discretion
(not to be unreasonably withheld) (each such letter of credit, together with
each Existing Letter of Credit, a "Letter of Credit" and collectively, the
"Letters of Credit").
(b) Notwithstanding the foregoing, (i) no Letter of Credit shall be
issued the Stated Amount of which, when added to the L/C Outstandings at such
time would exceed either (x) $30,000,000 or (y) when added to the aggregate
principal amount of all Revolving Loans made by Non-Defaulting Banks and all
Swingline Loans then outstanding, the Adjusted Total Revolving Commitment at
such time (after giving effect to any reductions to the Adjusted Total Revolving
Commitment on such date); (ii) each Letter of Credit shall have an expiry date
occurring not later than one year after such Letter of Credit's date of issuance
(subject to extension provisions acceptable to the Administrative Agent and the
Letter of Credit Issuer, which acceptance is not to be unreasonably withheld, or
except as may be otherwise agreed by the Administrative Agent and the Letter of
Credit Issuer with respect to Letters of Credit issued in respect of the AFICA
Bonds) and in no event occurring later than the third Business Day preceding the
Maturity Date; (iii) each Letter of Credit shall be denominated in U.S. dollars;
(iv) no Letter of Credit shall have a Stated Amount of less than $50,000 unless
otherwise agreed to by the Letter of Credit Issuer; and (v) no Letter of Credit
shall be issued by the
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Letter of Credit Issuer after it has received a written notice from the
Borrower, either Agent or the Required Banks stating that a Default or Event of
Default has occurred and is continuing until such time as the Letter of Credit
Issuer shall have received a written notice of (i) rescission of such notice
from the party or parties originally delivering such notice or (ii) the waiver
of such Default or Event of Default by the Required Banks.
(c) Schedule II hereto contains a description of all letters of credit
issued under the Original Credit Agreement that are to be outstanding on, and to
continue in effect after, the Restatement Effective Date. Each such letter of
credit shall constitute a "Letter of Credit" for all purposes of this Agreement,
issued, for purposes of Section 2.02(a) on the Restatement Effective Date, and
the Borrower, the Letter of Credit Issuer, the Agents and the Banks hereby agree
that, from and after such date, the terms of this Agreement shall apply to such
Letters of Credit, superseding the Original Credit Agreement.
2.02 Letter of Credit Participations. (a) Immediately upon the
issuance by the Letter of Credit Issuer of any Letter of Credit, the Letter of
Credit Issuer shall be deemed to have sold and transferred to each other Bank
(each such other Bank, in its capacity under this Section 2.02, a "Participating
Bank"), and each such Participating Bank shall be deemed irrevocably and
unconditionally to have purchased and received from the Letter of Credit Issuer,
without recourse or warranty, an undivided interest and participation, to the
extent of such Participating Bank's Adjusted Percentage, in such Letter of
Credit, each substitute letter of credit, each drawing made thereunder and the
obligations of the Borrower under this Agreement with respect thereto, and any
security therefor or guaranty pertaining thereto (although L/C Fees will be paid
directly to the Administrative Agent for the ratable account of the
Participating Banks as provided in Section 3.01(b) and the Participating Banks
shall have no right to receive any portion of any Facing Fees). Upon any change
in the Revolving Commitments of the Banks pursuant to Section 1.14 or 12.04 or
upon the occurrence of a Bank Default, it is hereby agreed that, with respect to
all outstanding Letters of Credit and Unpaid Drawings, there shall be an
automatic adjustment to the participations pursuant to this Section 2.02 to
reflect the new Adjusted Percentages of the assignor and assignee Bank or of all
Non-Defaulting Banks, as the case may be.
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<PAGE> 36
(b) In determining whether to pay under any Letter of Credit, the
Letter of Credit Issuer issuing same shall have no obligation relative to any
other Bank other than to confirm that any documents required to be delivered
under such Letter of Credit have been delivered and that they appear to comply
on their face with the requirements of such Letter of Credit. Any action taken
or omitted to be taken by the Letter of Credit Issuer under or in connection
with any Letter of Credit issued by it if taken or omitted in the absence of
gross negligence or willful misconduct, shall not create for the Letter of
Credit Issuer any resulting liability.
(c) In the event that the Letter of Credit Issuer makes any payment
under any Letter of Credit issued by it and the Borrower shall not have
reimbursed such amount in full to the Letter of Credit Issuer pursuant to
Section 2.04(a), the Letter of Credit Issuer shall promptly notify the
Administrative Agent and after receipt of such notice, the Administrative Agent
will notify each Participating Bank of such failure, and each Participating Bank
shall promptly and unconditionally pay to the Administrative Agent for the
account of the Letter of Credit Issuer, the amount of such Participating Bank's
Adjusted Percentage of such unreimbursed payment in lawful money of the United
States of America and in same day funds, together with interest at the customary
rate set by the Letter of Credit Issuer for the correction of errors among banks
for each day during the period consisting of the first three days following such
date of notice and thereafter at the Base Rate; provided, however, that no
Participating Bank shall be obligated to pay to the Administrative Agent for the
account of the Letter of Credit Issuer its Adjusted Percentage of such
unreimbursed amount for any wrongful payment made by the Letter of Credit Issuer
under a Letter of Credit as a result of acts or omissions constituting willful
misconduct or gross negligence on the part of the Letter of Credit Issuer. If
the Letter of Credit Issuer so notifies, prior to 11:00 A.M. (New York time) on
any Business Day, any Participating Bank required to fund a payment under a
Letter of Credit, such Participating Bank shall make available to the
Administrative Agent for the account of the Letter of Credit Issuer such
Participating Bank's Adjusted Percentage of the amount of such payment on such
Business Day in same day funds. If and to the extent such Participating Bank
shall not have so made its Adjusted Percentage of the amount of such payment
available to the Administrative Agent for the account of the Letter of Credit
Issuer, such Participating Bank agrees to pay to the Administrative Agent for
the account of the Letter of Credit Issuer, forthwith on demand
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such amount, together with interest thereon, for each day from such date until
the date such amount is paid to the Administrative Agent for the account of such
Letter of Credit Issuer at the overnight Federal Funds Rate. The failure of any
Participating Bank to make available to the Administrative Agent for the account
of the Letter of Credit Issuer its Adjusted Percentage of any payment under any
Letter of Credit shall not relieve any other Participating Bank of its
obligation hereunder to make available to the Administrative Agent for the
account of the Letter of Credit Issuer its Adjusted Percentage of any payment
under any Letter of Credit on the date required, as specified above, but no
Participating Bank shall be responsible for the failure of any other
Participating Bank to make available to the Administrative Agent, such other
Participating Bank's Adjusted Percentage of any such payment.
(d) Whenever the Letter of Credit Issuer receives a payment of a
reimbursement obligation as to which the Administrative Agent has received for
the account of the Letter of Credit Issuer any payments from the Participating
Banks pursuant to clause (c) above, the Letter of Credit Issuer shall pay to the
Administrative Agent and the Administrative Agent shall promptly pay to each
Participating Bank which has paid its Adjusted Percentage thereof, in lawful
money of the United States of America and in same day funds, an amount equal to
such Participating Bank's Adjusted Percentage of the principal amount of such
reimbursement and of interest reimbursed thereon accruing from and after the
date of the purchase of the respective participations.
(e) The obligations of the Participating Banks to make payments to the
Administrative Agent for the account of the Letter of Credit Issuer with respect
to Letters of Credit shall be irrevocable and not subject to counterclaim,
set-off or other defense or any other qualification or exception whatsoever and
shall be made in accordance with the terms and conditions of this Agreement
under all circumstances, including, without limitation, any of the following
circumstances:
(i) any lack of validity or enforceability of this Agreement or any of
the other Credit Documents;
(ii) the existence of any claim, set-off, defense or other right which
the Borrower may have at any time against a beneficiary named in a Letter
of Credit, any transferee of any Letter of Credit (or any Person for whom
any such transferee may be acting), any Agent, the
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Letter of Credit Issuer, any Bank, or other Person, whether in connection
with this Agreement, any Letter of Credit, the transactions contemplated
herein or any unrelated transactions (including any underlying transaction
between the Borrower and the beneficiary named in any such Letter of
Credit);
(iii) any draft, certificate or any other document presented under the
Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect;
(iv) the surrender or impairment of any security for the performance
or observance of any of the terms of any of the Credit Documents; or
(v) the occurrence of any Default or Event of Default.
2.03 Letter of Credit Requests; Notices of Issuance. (a) Whenever it
desires that a Letter of Credit be issued, the Borrower shall give the
Administrative Agent and the Letter of Credit Issuer written notice (including
by way of telecopier) thereof in substantially the form of Exhibit B hereto
prior to 1:00 P.M. (New York time) at least three Business Days (or such shorter
period as may be acceptable to the Letter of Credit Issuer) prior to the
proposed date (which shall be a Business Day) of issuance (each a "Letter of
Credit Request"), which Letter of Credit Request shall include an application
for the Letter of Credit and any other documents that such Letter of Credit
Issuer customarily requires in connection therewith. The Administrative Agent
shall promptly notify each Bank of each Letter of Credit Request.
(b) The delivery of each Letter of Credit Request shall be deemed a
representation and warranty by the Borrower that the Letter of Credit may be
issued in accordance with and will not violate the requirements of Section
2.01(b). The Letter of Credit Issuer shall, on the date of each issuance of a
Letter of Credit by it, give the Administrative Agent, each Bank and the
Borrower written notice of the issuance of such Letter of Credit, accompanied by
a copy to the Administrative Agent of the Letter of Credit or Letters of Credit
issued by it.
2.04 Agreement to Repay Letter of Credit Drawings. (a) The Borrower
hereby agrees to reimburse the Letter of
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Credit Issuer, by making payment to the Administrative Agent in U.S. dollars in
immediately available funds at the Payment Office, for any payment or
disbursement made by the Letter of Credit Issuer under any Letter of Credit
issued by it (each such amount so paid or disbursed until reimbursed, an "Unpaid
Drawing") immediately after, and in any event on the date of, notice from the
Letter of Credit Issuer of such payment or disbursement with interest on the
amount so paid or disbursed by the Letter of Credit Issuer, to the extent not
reimbursed prior to 1:00 P.M. (New York time) on the date of such payment or
disbursement, from and including the date paid or disbursed to but not including
the date the Letter of Credit Issuer is reimbursed therefor at a rate per annum
which shall be the Base Rate Margin plus the Base Rate as in effect from time to
time (plus an additional 2% per annum if not reimbursed by the third Business
Day after the date of notice of such payment or disbursement), such interest to
be payable on demand.
(b) The Borrower's obligation under this Section 2.04 to reimburse the
Letter of Credit Issuer with respect to Unpaid Drawings (including, in each
case, interest thereon) shall be absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim or defense to payment
which the Borrower may have or have had against the Letter of Credit Issuer, the
Administrative Agent, any Agent or any Bank, including, without limitation, any
defense based upon the failure of any drawing under a Letter of Credit to
conform to the terms of the Letter of Credit or any non-application or
misapplication by the beneficiary of the proceeds of such drawing; provided,
however, that the Borrower shall not be obligated to reimburse the Letter of
Credit Issuer for any wrongful payment made by the Letter of Credit Issuer under
a Letter of Credit as a result of acts or omissions constituting willful
misconduct or gross negligence on the part of the Letter of Credit Issuer.
2.05 Increased Costs. If at any time after the Restatement Effective
Date, the adoption or effectiveness of any applicable law, rule or regulation,
or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or actual compliance by the
Letter of Credit Issuer or any Participating Bank with any request or directive
(whether or not having the force of law) by any such authority, central bank or
comparable agency shall either (i) impose, modify or make applicable any
reserve, deposit, capital adequacy or similar requirement against
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Letters of Credit issued by the Letter of Credit Issuer or such Participating
Bank's participation therein, or (ii) shall impose on the Letter of Credit
Issuer or any Participating Bank any other conditions affecting this Agreement,
any Letter of Credit or such Participating Bank's participation therein; and the
result of any of the foregoing is to increase the cost to the Letter of Credit
Issuer or such Participating Bank of issuing, maintaining or participating in
any Letter of Credit, or to reduce the amount of any sum received or receivable
by the Letter of Credit Issuer or such Participating Bank hereunder (other than
any increased cost or reduction in the amount received or receivable resulting
from the imposition of or a change in the rate of taxes or similar charges),
then, upon demand to the Borrower by the Letter of Credit Issuer or such
Participating Bank (a copy of which notice shall be sent by the Letter of Credit
Issuer or such Participating Bank to the Administrative Agent), the Borrower
shall pay to the Letter of Credit Issuer or such Participating Bank such
additional amount or amounts as will compensate the Letter of Credit Issuer or
such Participating Bank for such increased cost or reduction. Each of the Letter
of Credit Issuer and each Participating Bank, in determining additional amounts
owing under this Section, will act reasonably and in good faith and will use
averaging and attribution methods which are reasonable, provided that such
Person's determination of such additional amounts so performed shall, absent
manifest error, be final and conclusive and binding on all parties hereto. A
certificate shall be submitted to the Borrower by the Letter of Credit Issuer or
such Participating Bank, as the case may be (a copy of which certificate shall
be sent by the Letter of Credit Issuer or such Participating Bank to the
Administrative Agent) setting forth the basis for the determination of such
additional amount or amounts necessary to compensate the Letter of Credit Issuer
or such Participating Bank as aforesaid, although the failure to deliver any
such certificate shall not release or diminish any of the Borrower's obligations
to pay additional amounts pursuant to this Section 2.05 upon receipt of such
certificate.
SECTION 3. Fees; Commitments.
3.01 Fees. (a) The Borrower agrees to pay to the Administrative Agent
a commitment commission ("Commitment Commission") for the account of each
Non-Defaulting Bank for the period from and including the Restatement Effective
Date to but not including the date the Total Revolving Commitment has been
terminated, computed at a rate for each day equal to
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the then CC Percentage on the daily average of such Bank's Unutilized Revolving
Commitment. Such Commitment Commission shall be due and payable quarterly in
arrears on the last Business Day of each calendar quarter and on the date upon
which the Total Revolving Commitment is terminated.
(b) The Borrower agrees to pay to the Administrative Agent for the
account of the Non-Defaulting Banks pro rata on the basis of their respective
Revolving Commitments, a fee in respect of each Letter of Credit (the "L/C Fee")
in an amount equal to the applicable Eurodollar Margin per annum on the average
daily Stated Amount of such Letter of Credit. Accrued L/C Fees shall be due and
payable quarterly in arrears on the last Business Day of each calendar quarter
and on the date upon which the Total Revolving Commitment shall be terminated.
(c) The Borrower agrees to pay to the Administrative Agent for the
account of the Letter of Credit Issuer a fee in respect of each Letter of Credit
issued by it (the "Facing Fee") computed at the rate of 1/8 of 1% per annum on
the average daily Stated Amount of such Letter of Credit. Accrued Facing Fees
shall be due and payable quarterly in arrears on the last Business Day of each
calendar quarter and on the date upon which the Total Revolving Commitment shall
be terminated.
(d) The Borrower hereby agrees to pay to any Letter of Credit Issuer
upon each issuance of, drawing under and/or amendment of, a Letter of Credit
such amount as shall at the time of such issuance, drawing and/or amendment
equal the administrative charge which such Letter of Credit Issuer is
customarily charging at such time for issuances of, drawings under and/or
amendments of letters of credit issued by it other than with respect to standby
letters of credit issued by such Letter of Credit Issuer.
(e) The Borrower shall pay to the Administrative Agent (x) on the
Restatement Effective Date for its own account and/or for distribution to the
Agents and/or the Banks such fees as heretofore agreed by such Borrower and the
Agents and (y) for the account of the Agents, such other fees as may be agreed
to from time to time between the Borrower and the Agents, when and as due.
(f) All computations of Fees shall be made in accordance with Section
12.07(b).
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3.02 Voluntary Reduction of Commitments. Upon at least three Business
Days' prior written notice (or telephonic notice confirmed in writing) to the
Administrative Agent at its Notice Office (which notice the Administrative Agent
shall promptly transmit to each of the Banks), the Borrower shall have the
right, without premium or penalty, to terminate the Total Unutilized Revolving
Commitment, in part or in whole, provided that (x) any such termination shall
apply to proportionately and permanently reduce the Revolving Commitment of each
of the Banks and (y) partial reduction pursuant to this sentence shall be in the
amount of at least $2,000,000.
3.03 Mandatory Reductions of Commitments, etc. (a) The Total Revolving
Commitment shall terminate on the Maturity Date.
(b) The Total Revolving Commitment shall be reduced:
(I) On the date that is ten Business Days after the date of receipt by
PXI or any of its Subsidiaries of the Cash Proceeds of any Asset Sale (other
than the Hialeah & Dadeland Transfer), by an amount equal to the Net Cash
Proceeds of such Asset Sale, provided the Total Revolving Commitment shall not
be so reduced as a result of any Asset Sale to the extent the Borrower elects,
as hereinafter provided, to cause such Net Cash Proceeds to be reinvested in
Reinvestment Assets (a "Reinvestment Election"). The Borrower may exercise its
Reinvestment Election with respect to an Asset Sale provided that (x) no Default
or Event of Default exists at the time of such Asset Sale and (y) the Borrower
delivers a Reinvestment Notice to the Administrative Agent no later than thirty
days after the end of the second and fourth fiscal quarters of each fiscal year
with respect to the Asset Sales occurring during the previous two or four fiscal
quarters respectively, with such Reinvestment Election being effective with
respect to the Net Cash Proceeds of such Asset Sales equal to the respective
Reinvestment Amounts specified in such Reinvestment Notice;
(II) On the date of the receipt by PXI or any of its Subsidiaries of
the proceeds of any incurrence of Indebtedness (other than Indebtedness
permitted by Section 8.03 as such Section is in effect on the Restatement
Effective Date), by an amount equal to the Net Debt Issuance Proceeds of such
incurrence;
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(III) On each date that is five Business Days after the date of the
receipt by PXI of proceeds from the issuance of equity, by an amount equal to
60% of the Net Equity Issuance Proceeds of any such issuance; and
(IV) (x) On the date of delivery of any Reinvestment Notice with
respect to an Asset Sale, by an amount equal to the difference between the Net
Cash Proceeds of such Asset Sale and the Reinvestment Amount specified in such
Reinvestment Notice with respect to such Asset Sale and (y) on the Reinvestment
Reduction Date with respect to an Asset Sale, by an amount equal to the
Reinvestment Reduction Amount, if any, for such Asset Sale.
(c) Each reduction of the Total Revolving Commitment pursuant to this
Section 3.03 shall apply proportionately to the Revolving Commitment of each
Bank.
SECTION 4. Payments.
4.01 Voluntary Prepayments. The Borrower shall have the right to
prepay Loans owing by it in whole or in part, without penalty or fee except as
otherwise provided in this Agreement, from time to time on the following terms
and conditions: (i) the Borrower shall give the Administrative Agent at the
Notice Office written notice (or telephonic notice promptly confirmed in
writing) of its intent to prepay Loans, whether such Loans are Revolving Loans
or Swingline Loans, the amount of such prepayment and (in the case of Eurodollar
Loans) the specific Borrowing(s) pursuant to which made, which notice shall be
given by the Borrower at least two Business Days prior to (or in the case of
Swingline Loans prior to 12:00 Noon (New York Time) on) the date of such
prepayment, which notice shall promptly be transmitted by the Administrative
Agent to each of the Banks (except in respect of Swingline Loans); (ii) each
partial prepayment of any Borrowing shall be in an aggregate principal amount of
at least $2,000,000 (or, in respect of a partial prepayment of any Borrowing of
Swingline Loans, in such lesser principal amount as may be satisfactory to
Scotiabank), provided that no partial prepayment of Eurodollar Loans shall
reduce the aggregate principal amount of Eurodollar Loans outstanding pursuant
to a Borrowing to an amount less than the Minimum Borrowing Amount applicable
thereto; and (iii) each prepayment in respect of any Loans made pursuant to a
Borrowing shall be applied pro rata among such Loans provided that at the
Borrower's election no portion of any voluntary prepayment shall be applied to
the Revolving Loans of a Defaulting Bank.
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4.02 Mandatory Prepayments.
(A) Requirements:
(a) If on any date the sum of the aggregate outstanding principal
amount of Revolving Loans made by Non-Defaulting Banks and Swingline Loans and
the aggregate amount of L/C Outstandings exceeds the Adjusted Total Revolving
Commitment as then in effect, the Borrower shall repay on such date the
principal of Swingline Loans (and, after Swingline Loans have been paid in full,
Revolving Loans of Non-Defaulting Banks) in an aggregate amount equal to such
excess. If, after giving effect to the prepayment of all outstanding Swingline
Loans and Revolving Loans of Non-Defaulting Banks, the aggregate amount of L/C
Outstandings exceeds the Adjusted Total Revolving Commitment then in effect, the
Borrower shall pay to the Administrative Agent an amount in cash and/or Cash
Equivalents equal to such excess and the Administrative Agent shall hold such
payment as security for the obligations of the Borrower hereunder pursuant to a
cash collateral agreement to be entered into in form and substance satisfactory
to the Administrative Agent (which shall permit certain investments in Cash
Equivalents, until the proceeds are applied to the Obligations).
(b) If on any date the outstanding principal amount of Revolving Loans
made by a Defaulting Bank exceeds the Revolving Commitment of such Defaulting
Bank, the Borrower shall repay the Revolving Loans of such Defaulting Bank in an
amount equal to such excess.
(c) On the date of any equity contribution to the Borrower by PXI in
an amount equal to the principal amount of any PXI Subordinated Notes (which
equity contribution PXI agrees to make upon its receipt of the proceeds of any
PXI Subordinated Notes), the Borrower shall apply the proceeds of such equity
contribution to reduce the principal amount of then outstanding Revolving Loans
to the extent thereof (but such prepayment shall not reduce the Revolving
Commitment).
(B) Application:
(a) With respect to each repayment of Loans required by Section
4.02(A), the Borrower may designate the specific Borrowing(s) to be repaid,
provided that (i) each repayment of any Loans made pursuant to a Borrowing shall
be applied pro rata among such Loans; (ii) if any repayment of Eurodollar Loans
made pursuant to a single Borrowing shall reduce the outstanding Loans made
pursuant to such Borrowing
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to an amount less than the Minimum Borrowing Amount for such Eurodollar Loans,
such Borrowing shall be immediately converted into Base Rate Loans; and (iii)
notwithstanding the provisions of the preceding clause (i), no repayment of
Revolving Loans pursuant to Section 4.02(A)(a) shall be applied to the Revolving
Loans of a Defaulting Bank. In the absence of a designation by any Borrower as
described in the preceding sentence, the Administrative Agent shall, subject to
the above, make such designation in its sole discretion with a view, but no
obligation, to minimize breakage costs owing under Section 1.11.
4.03 Method and Place of Payment. Except as otherwise specifically
provided herein, all payments under this Agreement shall be made to the
Administrative Agent for the ratable account of the Banks entitled thereto, not
later than 1:00 P.M. (New York time) on the date when due and shall be made in
immediately available funds and in lawful money of the United States of America
at the Payment Office. Any payments under this Agreement which are made later
than 1:00 P.M. (New York time) shall be deemed to have been made on the next
succeeding Business Day. Whenever any payment to be made hereunder shall be
stated to be due on a day which is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day and, with respect to
payments of principal, interest shall be payable during such extension at the
applicable rate in effect immediately prior to such extension.
4.04 Net Payments. (a) All payments made by the Borrower hereunder,
under any Note or under any other Credit Document will be made without setoff,
counterclaim or other defense. All such payments will be made free and clear of,
and without deduction or withholding for, any present or future taxes, levies,
imposts, duties, fees, assessments or other charges of whatever nature now or
hereafter imposed by any jurisdiction or by any political subdivision or taxing
authority thereof or therein (but excluding, except as provided below, any tax
imposed on or measured by the net income of a Bank pursuant to the laws of the
jurisdiction in which the principal office or applicable lending office of such
Bank is located or under the laws of any political subdivision or taxing
authority of any such jurisdiction in which the principal office or applicable
lending office of such Bank is located) and all interest, penalties or similar
liabilities with respect thereto (collectively, "Taxes"). If any Taxes are so
levied or imposed, the Borrower agrees to pay the full amount of such Taxes, and
such additional amounts as may be necessary so that every payment of all
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amounts due from such Borrower hereunder, under any Note or under any other
Credit Document, after withholding or deduction for or on account of any Taxes,
will not be less than the amount provided for herein or in such Note. The
Borrower shall also reimburse each Bank, upon the written request of such Bank,
for taxes imposed on or measured by the net income of such Bank pursuant to the
laws of the jurisdiction in which the principal office or applicable lending
office of such Bank is located or of any political subdivision or taxing
authority of any such jurisdiction as such Bank shall determine are payable by
such Bank in respect of Taxes paid to or on behalf of such Bank pursuant to this
or the preceding sentence by the Borrower. The Borrower will furnish to the
Administrative Agent within five days after the date the payment of any Taxes,
or any withholding or deduction on account thereof, is due pursuant to
applicable law certified copies of tax receipts evidencing such payment by such
Borrower. The Borrower will indemnify and hold harmless the Administrative Agent
and each Bank, and reimburse the Administrative Agent or such Bank upon its
written request, for the amount of any Taxes so levied or imposed and paid or
withheld by such Bank.
(b) Each Bank that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes
agrees to deliver to the Borrower and the Administrative Agent on or prior to
the Restatement Effective Date, or in the case of a Bank that is an assignee or
transferee of an interest under this Agreement pursuant to Section 1.14 (unless
the respective Bank was already a Bank hereunder immediately prior to such
assignment or transfer), on the date of such assignment or transfer to such
Bank, (i) two accurate and complete original signed copies of Internal Revenue
Service Form 4224 or 1001 (or successor forms) certifying to such Bank's
entitlement to a complete exemption from United States withholding tax with
respect to payments to be made under this Agreement, under any Note and under
any Credit Document, or (ii) if the Bank is not a "bank" within the meaning of
Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue
Service Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate
substantially in the form of Exhibit C (any such certificate, a "Section
4.04(b)(ii) Certificate") and (y) two accurate and complete original signed
copies of Internal Revenue Service Form W-8 (or successor form) certifying to
such Bank's entitlement to a complete exemption from United States withholding
tax with respect to payments of interest to be made under this Agreement, under
any Note and under any Credit Document. In addition, each Bank agrees that from
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time to time after the Restatement Effective Date, when a lapse in time or
change in circumstances renders the previous certification obsolete or
inaccurate in any material respect, it will deliver to the Borrower and the
Administrative Agent two new accurate and complete original signed copies of
Internal Revenue Service Form 4224 or 1001, or Form W-8 and a Section
4.04(b)(ii) Certificate, as the case may be, and such other forms as may be
required in order to confirm or establish the entitlement of such Bank to a
continued exemption from or reduction in United States withholding tax with
respect to payments under this Agreement, any Note and under any Credit
Document, or it shall immediately notify the Borrower and the Administrative
Agent of its inability to deliver any such Form or Certificate, in which case
such Bank shall not be required to deliver any such Form or Certificate pursuant
to this Section 4.04(b). Notwithstanding anything to the contrary contained in
Section 4.04(a), but subject to the immediately succeeding sentence, (x) the
Borrower shall be entitled, to the extent it is required to do so by law, to
deduct or withhold income or similar taxes imposed by the United States (or any
political subdivision or taxing authority thereof or therein) from interest,
Fees or other amounts payable hereunder for the account of any Bank which is not
a United States person (as such term is defined in Section 7701(a)(30) of the
Code) for U.S. Federal income tax purposes to the extent that such Bank has not
provided to the Borrower U.S. Internal Revenue Service Forms that establish a
complete exemption from such deduction or withholding and (y) the Borrower shall
not be obligated pursuant to Section 4.04(a) hereof to gross-up payments to be
made to a Bank in respect of income or similar taxes imposed by the United
States if (I) such Bank has not provided to the Borrower the Internal Revenue
Service Forms required to be provided to the Borrower pursuant to this Section
4.04(b) or (II) in the case of a payment, other than interest, to a Bank
described in clause (ii) above, to the extent that such Forms do not establish a
complete exemption from withholding of such taxes. Notwithstanding anything to
the contrary contained in the preceding sentence or elsewhere in this Section
4.04 and except as set forth in Section 12.04(a), the Borrower agrees to pay any
additional amounts and to indemnify each Bank in the manner set forth in Section
4.04(a) (without regard to the identity of the jurisdiction requiring the
deduction or withholding) in respect of any Taxes deducted or withheld by it as
described in the immediately preceding sentence as a result of any changes after
the Restatement Effective Date in any applicable law, treaty, governmental rule,
regulation, guideline or order, or in the interpretation thereof, relating to
the deducting or withholding of such Taxes.
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SECTION 5. Conditions Precedent.
5.01 Conditions Precedent to Restatement Effective Date. This
Agreement shall become effective on the date (the "Restatement Effective Date")
when each of the following conditions are first satisfied:
(a) Effectiveness; Notes. On or prior to the Restatement Effective
Date (i) the Borrower and each of the Banks shall have signed a copy of this
Agreement (whether the same or different copies) and shall have delivered the
same to the Administrative Agent at its Notice Office or, in the case of the
Banks, shall have given to the Administrative Agent telephonic (confirmed in
writing), written, telex or facsimile transmitted notice (actually received) at
its Notice Office that the same has been signed and mailed to it and (ii) there
shall have been delivered to the Administrative Agent for the account of each
Bank the appropriate Note or Notes executed by the Borrower, in each case, in
the amount, maturity and as otherwise provided herein.
(b) Opinions of Counsel. On the Restatement Effective Date, the
Administrative Agent shall have received opinions, addressed to the Agents and
each of the Banks and dated the Restatement Effective Date, from (i) Milbank,
Tweed, Hadley & McCloy, counsel to the Credit Parties in the form of Exhibit D-1
hereto, which opinion shall cover such other matters incident to the
transactions contemplated herein as the Agents may reasonably request, (ii)
Fiddler, Gonzalez & Rodriguez, which opinion shall cover enforceability,
validity and binding effect of certain Security Documents, the perfection and
priority of the security interests granted pursuant to certain Security
Documents, the applicability of Puerto Rican withholding taxes to the
transactions contemplated herein and such other matters incident to the
transactions contemplated herein or therein, as the Agents may reasonably
request and shall be in form and substance satisfactory to the Agents and (iii)
White & Case, special counsel to the Banks, in the form of Exhibit D-2 hereto.
(c) Corporate Proceedings. (i) On the Restatement Effective Date, the
Agents shall have received from each Credit Party a certificate, dated the
Reinstatement Effective Date, signed by an Authorized Officer of each Credit
Party in the form of Exhibit C hereto with appropriate insertions and deletions,
together with (x) copies of the articles of
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incorporation and the by-laws (or other organizational documents) of each Credit
Party, (y) the resolutions of each Credit Party which shall be satisfactory to
the Agents and (z) a statement that all of the applicable conditions set forth
in Sections 5.01(g), (m), (n) and (o) and 5.02 exist as of such date.
(ii) On the Restatement Effective Date, all corporate and legal
proceedings and all instruments and agreements in connection with the
transactions contemplated by this Agreement and the other Credit Documents shall
be satisfactory in form and substance to the Agents and the Agents shall have
received all information and copies of all certificates and any other records of
corporate proceedings and governmental approvals, if any, which the Agents may
have requested in connection therewith, such records, where appropriate, to be
certified by proper corporate or governmental authorities.
(d) Original Credit Agreement. On the Restatement Effective Date and
concurrently with the initial borrowing hereunder, the Borrower and Xtra shall
have (i) repaid in full the outstanding principal amount of all Loans under and
as defined in the Original Credit Agreement, (ii) terminated all letters of
credit issued thereunder (other than Existing Letters of Credit) and (iii) paid
all accrued but unpaid interest and fees under the Original Credit Agreement,
whether or not otherwise then due and payable.
(e) Issuance of PXI Senior Notes. On or prior to the Restatement
Effective Date, (i) PXI shall have consummated the issuance of the Additional
PXI Senior Notes and received net cash proceeds therefrom (after the payment of
fees and expenses in connection therewith) in an aggregate amount of at least
$73,000,000, and (ii) the Agents and the Banks shall have received copies of the
Additional PXI Senior Note Documents certified as true and correct by PXI in a
certificate signed by an Authorized Officer, and the PXI Senior Note Documents
shall be in full force and effect and the terms and conditions thereof shall be
substantially identical to the Existing PXI Senior Notes Documents and otherwise
shall be in form and substance satisfactory to the Agents and the Required
Banks. All of the proceeds of the Additional PXI Senior Notes shall have been
contributed to the Borrower and used to repay outstandings under the Original
Credit Agreement.
(f) Pledge Agreements. (i) On the Restatement Effective Date, PXI
shall have duly authorized, executed and
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delivered an amended and restated Pledge Agreement substantially in the form of
Exhibit E-1, together with such changes (or with such other documents) as may be
requested by the Collateral Agent in connection with local law (each as
modified, supplemented, amended or restated from time to time, a "PXI Pledge
Agreement") and shall have delivered to the Collateral Agent, as Pledgee, all
the Pledged Securities referred to therein (including the Subordinated
Intercompany Real Estate Note and Subordinated Intercompany Notes, each of which
shall have been endorsed in favor of the Collateral Agent, and all shares of
capital stock) then owned by PXI, (x) endorsed in blank in the case of
promissory notes (except as set forth above) and (y) together with executed and
undated stock powers, in the case of capital stock.
(ii) On the Restatement Effective Date, the Borrower shall have duly
authorized, executed and delivered an amended and restated Pledge Agreement
substantially in the form of Exhibit E-2 (as modified, supplemented, amended or
restated from time to time, the "Borrower Pledge Agreement") and shall have
delivered to the Collateral Agent, as Pledgee, all the Pledged Securities
referred to therein then owned by the Borrower, (x) endorsed in blank in the
case of promissory notes and (y) together with executed and undated stock
powers, in the case of capital stock.
(iii) On the Restatement Effective Date, Xtra shall have duly
authorized, executed and delivered an amended and restated Pledge Agreement
substantially in the form of Exhibit E-3 (as modified, supplemented, amended or
restated from time to time, the "Xtra Pledge Agreement") and shall have
delivered to the Collateral Agent, as Pledgee, all of the Pledged Securities
referred to therein then owned by Xtra (x) endorsed in blank in the case of
promissory notes and (y) together with executed and undated stock powers, in the
case of capital stock.
(iv) On the Restatement Effective Date, Xtra Merger Corporation shall
have duly authorized, executed and delivered an amended and restated Pledge
Agreement substantially in the form of Exhibit E-4 (as modified, supplemented,
amended or restated from time to time, the "XM Pledge Agreement") and shall have
delivered to the Collateral Agent, as Pledgee, all of the Pledged Securities
referred to therein then owned by Xtra Merger Corporation (x) endorsed in blank
in the case of promissory notes and (y) together with executed and undated stock
powers, in the case of capital stock.
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(g) Subsidiary Guaranty. On the Restatement Effective Date, each
Subsidiary of PXI (other than the Borrower, Xtra and Caribad, Inc.) shall have
duly authorized, executed and delivered an amended and restated Guaranty in the
form of Exhibit F (as modified, supplemented or amended from time to time, the
"Subsidiary Guaranty").
(h) Security Agreements. On the Restatement Effective Date, (i) the
Borrower shall have duly authorized, executed and delivered an amended and
restated Security Agreement substantially in the form of Exhibit G-1, together
with such changes (or with such other documents) as may be requested by the
Collateral Agent in connection with local law (each, as modified, supplemented
or amended from time to time, the "Borrower Security Agreement") covering all of
the Borrower's respective present and future Security Agreement Collateral and
(ii) Xtra and each Subsidiary Guarantor shall have duly authorized, executed and
delivered the Security Agreement substantially in the form of Exhibit G-2,
together with such changes (or with such other documents) as may be requested by
the Collateral Agent in connection with local law (each, as modified,
supplemented or amended from time to time, the "Subsidiary Security Agreement")
covering all of each Subsidiary's respective present and future Security
Agreement Collateral, together in each case with:
(A) executed copies of Financing Statements (Forms UCC-1 or
UCC-3) or appropriate local equivalent in appropriate form for filing
under the UCC or appropriate local equivalent of each jurisdiction as
may be necessary to perfect or maintain the security interests
purported to be created by the Security Agreements and capable of
being perfected by the filing of such Financing Statements or
appropriate local equivalent;
(B) certified copies of Requests for Information or Copies
(Form UCC-11), or equivalent reports, each of recent date listing all
effective financing statements that name PXI, the Borrower or, Xtra as
debtor and that are filed in the jurisdictions referred to in clause
(A), together with copies of such financing statements (none of which
shall cover the Collateral except (x) those with respect to which
appropriate termination statements executed by the secured lender
thereunder have been delivered to the Administrative Agent and (y) to
the extent evidencing Permitted Liens);
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(C) evidence of the completion of all other recordings and
filings of, or with respect to, the Security Agreements as may be
necessary or, in the opinion of the Collateral Agent, desirable to
perfect the security interests intended to be created by the Security
Agreements; and
(D) evidence that all other actions necessary or, in the
reasonable opinion of the Collateral Agent, desirable to perfect and
protect the security interests purported to be created by the Security
Agreements have been taken.
(i) Mortgages; Intercompany Mortgages; Title Insurance; Surveys; Etc.
(i) On the Restatement Effective Date, the Collateral Agent shall have
received fully executed counterparts of amendments to the Mortgages in form
and substance satisfactory to the Collateral Agent, and arrangements
reasonably satisfactory to the Collateral Agent shall be in place to
provide that counterparts of such amendments shall be recorded on the
Restatement Effective Date or within one Business Day thereof in all places
to the extent necessary or desirable, in the judgment of the Collateral
Agent, effectively to maintain a valid and enforceable first priority Lien,
subject only to Permitted Encumbrances, on each Mortgaged Property in favor
of the Collateral Agent for the benefit of the Secured Parties.
(ii) On the Restatement Effective Date, (A) the Collateral Agent shall
have received certified copies of fully executed counterparts of amendments
to (x) deeds of trust, leasehold deeds of trust, mortgages, leasehold
mortgages and similar documents in each case in form and substance
satisfactory to the Collateral Agent (each an "Intercompany Mortgage" and
collectively the "Intercompany Mortgages") and covering all of the PRMP,
(y) one or more amendments to chattel mortgages covering the Borrower's
personal property located in Puerto Rico and (z) amendments to other
Security Documents with respect to personal property of the Borrower
located in Puerto Rico, and arrangements reasonably satisfactory to the
Collateral Agent shall be in place to provide that counterparts of such
amendments shall be presented for recording on the Restatement Effective
Date or within one Business Day thereof in all places to the extent
necessary or desirable, in the judgment of the Collateral Agent,
effectively to maintain a valid and
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enforceable first priority Lien, subject only to Permitted Encumbrances, on
each such PRMP and such personal property and (B) PXI and the Borrower
shall have executed an amendment to pledge agreement (the "Puerto Rico
Pledge Agreement") and the Borrower shall have delivered to the Collateral
Agent the Mortgage Notes (as defined in the Puerto Rico Pledge Agreement)
in respect of such Intercompany Mortgages and chattel mortgages.
(iii) The Collateral Agent shall have received updated ALTA mortgagee
title insurance policies or the equivalent thereof (or binding commitments
to issue such title insurance policies) issued by title insurers
satisfactory to the Collateral Agent (the "Mortgage Policies") in amounts
satisfactory to the Collateral Agent and assuring the Collateral Agent that
the Mortgages and Intercompany Mortgages are valid and enforceable first
priority mortgage Liens on the respective Mortgaged Properties, free and
clear of all defects and encumbrances except Permitted Encumbrances. Such
Mortgage Policies shall be in form and substance satisfactory to the
Collateral Agent and shall include an endorsement for future advances (to
the extent available in the respective jurisdiction of each Mortgaged
Property) under this Agreement, the Notes and the Mortgages and
Intercompany Mortgages, for mechanics' liens (to the extent available in
the respective jurisdiction of each Mortgaged Property) and for any other
matter that the Collateral Agent in its discretion may reasonably request
prior to the Restatement Effective Date, and shall provide for affirmative
insurance and such reinsurance (including direct access agreements) as the
Collateral Agent in its discretion may request prior to the Restatement
Effective Date.
(j) Solvency Certificate. On the Restatement Effective Date, the
Agents shall have received from the President and Chief Executive Officer of
PXI, acting on behalf of PXI, a certificate in the form of Exhibit H hereto,
expressing opinions of value and other appropriate facts or information
regarding the solvency of PXI and its Subsidiaries taken as a whole and of the
Borrower.
(k) Insurance Policies. On the Restatement Effective Date, the Agents
shall have received evidence of insurance complying with the requirements of
Section 7.09 for the business and properties of PXI and its Subsidiaries, in
form and substance satisfactory to the Agents and, with
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respect to all casualty insurance, naming the Collateral Agent on behalf of the
Secured Parties, as mortgagee/secured party and loss payee.
(l) Consent Letter. On the Restatement Effective Date, the
Administrative Agent shall have received a letter from CT Corporation System,
presently located at 1633 Broadway, New York, NY 10019, in the form of Exhibit I
indicating its consent to its appointment by each Credit Party as their agent to
receive service of process.
(m) Payment of Fees. On or prior to the Restatement Effective Date,
all costs, fees and expenses, and all other compensation contemplated by this
Agreement, due to the Agents or the Banks (including, without limitation, legal
fees and expenses) shall have been paid by the Borrower to the extent due.
(n) Adverse Change. From January 25, 1997 to the Restatement Effective
Date, nothing shall have occurred which the Required Banks or either Agent shall
determine has, or is reasonably likely to have, a material adverse effect on the
rights or remedies of the Banks, or the Agents, or on the ability of any Credit
Party to perform its obligations to the Banks or the Agents under this Agreement
or any other Credit Document.
(o) Litigation. No litigation by any entity (private or governmental)
shall be pending or threatened on the Restatement Effective Date (a) with
respect to this Agreement or any other Credit Document or (b) which either Agent
or the Required Banks shall determine could reasonably be expected to have a
Material Adverse Effect.
(p) Depositary Account Agreement. On the Restatement Effective Date,
the Borrower shall have duly authorized, executed and delivered a Depositary
Account Agreement substantially in the form of Exhibit L hereto.
5.02 Conditions Precedent to All Credit Events. The obligation of each
Bank to make any Loans and the obligation of the Letter of Credit Issuer to
issue any Letter of Credit is subject, at the time of each such Credit Event
(including Credit Events occurring on the Restatement Effective Date) to the
satisfaction of the following conditions at such time:
(a) At the time of each Credit Event and also after giving effect
thereto (i) there shall exist no Default
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or Event of Default and (ii) all representations and warranties contained herein
or in the other Credit Documents in effect at such time shall be true and
correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the date of such
Credit Event (except to the extent any representation or warranty is expressly
made as of a specific date, in which case such representation and warranty shall
be true and correct in all material respects as of such date).
(b) The Administrative Agent shall have received a Notice of Borrowing
with respect to such Borrowing of Loans meeting the requirements of Section 1.02
or a Letter of Credit Request for such issuance of a Letter of Credit meeting
the requirements of Section 2.03, as the case may be.
The acceptance of the benefits of each Credit Event shall constitute a
representation and warranty by each Credit Party to each of the Banks that all
of the applicable conditions specified in this Section 5 are then satisfied. All
of the certificates, legal opinions and other documents and papers referred to
in this Section 5, unless otherwise specified, shall be delivered to the
Administrative Agent at its Notice Office for the account of each of the Banks
and, except for the Notes, in sufficient counterparts or copies for each of the
Banks and shall be satisfactory in form and substance to the Agents.
SECTION 6. Representations, Warranties and Agreements. In order to
induce the Banks to enter into this Agreement and the Banks to make the Loans
and participate in Letters of Credit and the Letter of Credit Issuer to issue
Letters of Credit as provided for herein, each of PXI, the Borrower or Xtra make
the following representations and warranties to, and agreements with, the Banks
and the Letter of Credit Issuer, all of which shall survive the execution and
delivery of this Agreement and the making of the Loans and the issuance of
Letters of Credit (with the occurrence of each Credit Event being deemed to
constitute a representation and warranty that the matters specified in this
Section 6 are true and correct in all material respects on and as of the date
hereof and as of the date of each such Credit Event, except to the extent that
any representation or warranty is expressly made as of a specific date, in which
case such representation or warranty shall be true and correct in all material
respects as of such specific date):
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6.01 Corporate Status. Each of the Credit Parties (i) is a duly
organized and validly existing corporation in good standing under the laws of
the jurisdiction of its organization and has the corporate power and authority
to own its property and assets and to transact the business in which it is
engaged and presently proposes to engage and (ii) has duly qualified and is
authorized to do business and is in good standing in all jurisdictions where it
is required to be so qualified and where the failure to be so qualified is
reasonably likely to have a Material Adverse Effect.
6.02 Corporate Power and Authority. Each Credit Party has the
corporate power and authority to execute, deliver and carry out the terms and
provisions of the Credit Documents to which it is a party and has taken all
necessary corporate action to authorize the execution, delivery and performance
of the Credit Documents to which it is a party. Each Credit Party has duly
executed and delivered each Credit Document to which it is a party and each such
Credit Document constitutes the legal, valid and binding obligation of such
Credit Party enforceable in accordance with its terms.
6.03 No Violation. Neither the execution, delivery and performance by
any Credit Party of the Credit Documents to which it is a party nor compliance
with the terms and provisions thereof, nor the consummation of the transactions
contemplated therein (i) will contravene any applicable provision of any law,
statute, rule, regulation, order, writ, injunction or decree of any court or
governmental instrumentality, (ii) will result in any breach of any of the
terms, covenants, conditions or provisions of, or constitute a default under, or
(other than pursuant to the Security Documents) result in the creation or
imposition of (or the obligation to create or impose) any Lien upon any of the
property or assets of any Credit Party pursuant to the terms of any indenture,
mortgage, deed of trust, agreement or other instrument to which any Credit Party
is a party or by which it or any of its property or assets are bound or to which
it may be subject, including without limitation any Permitted Existing
Indebtedness Agreements but excluding any agreements in respect of pre-existing
indebtedness that is being refinanced on the Restatement Effective Date, or
(iii) will violate any provision of the Certificate of Incorporation or ByLaws
of any Credit Party.
6.04 Litigation. There are no actions, suits or proceedings pending or
threatened with respect to any Credit Party (i) that are likely to have a
Material Adverse Effect or (ii) that could have a material adverse effect on the
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rights or remedies of the Administrative Agent or the Banks or on the ability of
any Credit Party to perform its obligations to them hereunder and under the
other Credit Documents to which it is, or will be, a party.
6.05 Use of Proceeds. (a) The proceeds of all Revolving Loans incurred
on the Restatement Effective Date shall be utilized to repay Loans under and as
defined in the Original Credit Agreement.
(b) The proceeds of Revolving Loans incurred after the Restatement
Effective Date and also Swingline Loans shall be utilized for general corporate
purposes of the Borrower and its Subsidiaries.
(c) No part of the proceeds of any Loan will be used to purchase or
carry any Margin Stock or to extend credit for the purpose of purchasing or
carrying any Margin Stock.
6.06 Governmental Approvals. No order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with
(other than UCC and other "security interest perfection" filings and/or mortgage
recordings contemplated by this Agreement in respect of the Collateral), or
exemption by, any foreign or domestic governmental or public body or authority,
or any subdivision thereof, is required to authorize or is required in
connection with (i) the execution, delivery and performance of any Credit
Document or (ii) the legality, validity, binding effect or enforceability of any
Credit Document.
6.07 Investment Company Act. No Credit Party is an "investment
company" or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
6.08 Public Utility Holding Company Act. No Credit Party is a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company," within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
6.09 True and Complete Disclosure. All factual information (taken as a
whole) heretofore or contemporaneously furnished by or on behalf of any Credit
Party in writing to either Agent or any Bank for purposes of or in connection
with this Agreement or any transaction contemplated
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herein is, and all other such factual information (taken as a whole) hereafter
furnished by or on behalf of any Credit Party in writing to any Bank will be,
true and accurate in all material respects on the date as of which such
information is dated or certified and not incomplete by omitting to state any
material fact necessary to make such information (taken as a whole) not
misleading at such time in light of the circumstances under which such
information was provided. The projections and pro forma financial information
contained in such materials are based on good faith estimates and assumptions
believed by the Credit Parties to be reasonable at the time made, it being
recognized by the Banks that such projections as to future events are not to be
viewed as facts and that actual results during the period or periods covered by
any such projections may differ from the projected results in any material
respect. There is no fact known to any Credit Party which has, or is reasonably
likely to have, a Material Adverse Effect which has not been disclosed herein or
in such other documents, certificates and statements furnished to the Banks for
use in connection with the transactions contemplated hereby.
6.10 Financial Condition; Financial Statements. (a) On and as of the
Restatement Effective Date on a pro forma basis after giving effect to the
Refinancing and all Indebtedness incurred, and to be incurred, and Liens created
and to be created, by each Credit Party in connection therewith, with respect to
each of PXI and its Subsidiaries taken as a whole, and of the Borrower (x) the
sum of its or their assets, at a fair valuation, will exceed its or their debts,
(y) it or they will not have incurred nor intended to, or believes that it or
they will not, incur debts beyond its or their ability to pay such debts as such
debts mature during the period prior to the Maturity Date and (z) it and they
will have sufficient capital with which to conduct its or their businesses. For
purposes of this Section 6.10(a), "debt" means any liability on a claim, and
"claim" means (i) right to payment whether or not such a right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured; or (ii) right to
an equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.
(b) The consolidated and consolidating balance sheets of PXI and its
Subsidiaries at January 25, 1997, January 26, 1996 and January 27, 1995 and the
related con-
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solidated and consolidating statements of income and (in consolidated form only)
cash flows of PXI and its Subsidiaries for the fiscal years ended as of said
dates, which have been examined by Deloitte & Touche, independent certified
public accountants, and the unaudited pro forma (after giving effect to the
Refinancing) balance sheet of PXI and its Subsidiaries as at January 25, 1997,
copies of which have heretofore been furnished to each Bank, present fairly in
all material respects the consolidated and consolidating financial position of
PXI and its Subsidiaries at the dates of said statements and the consolidated
and consolidating income and cash flows for the periods covered thereby (or, in
the case of the pro forma consolidated balance sheet, present a good faith
estimate of the consolidated pro forma financial condition of PXI and its
Subsidiaries at the date thereof). All such financial statements (other than the
aforesaid pro forma balance sheet) have been prepared in accordance with GAAP
and practices consistently applied except to the extent provided in the notes to
said financial statements.
(c) There has been no material adverse change in the business,
property, assets, liabilities, condition (financial or otherwise) or prospects
of PXI and its Subsidiaries taken as a whole since January 25, 1997.
(d) Except as fully reflected in the pro forma financial statements,
and in the audited financial statements for the fiscal year ended January 25,
1997, described in Section 6.10(b), there were as of the Restatement Effective
Date (and after giving effect to any Loans made on such date), no liabilities or
obligations (excluding current obligations incurred in the ordinary course of
business) with respect to PXI or any of its Subsidiaries of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether or
not due), and PXI does not know of any basis for the assertion against PXI or
any of its Subsidiaries of any such liability or obligation which, either
individually or in aggregate, are or would be reasonably likely to be material
to PXI and its Subsidiaries taken as a whole.
6.11 Security Interests. On and after the Restatement Effective Date,
each of the Security Documents creates, as security for the Obligations, a valid
and enforceable perfected security interest in and Lien on all of the
Collateral, superior to and prior to the rights of all third persons and subject
to no other Liens (except (i) that the Security Agreement Collateral may be
subject to the security interests evidenced by Permitted Liens relating
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thereto and (ii) the Mortgaged Properties may be subject to Permitted
Encumbrances relating thereto), in favor of the Collateral Agent for the benefit
of the respective Secured Parties. No filings or recordings are required in
order to perfect the security interests created under any Security Document
except for filings or recordings required in connection with any such Security
Document which shall have been made, or provided for as contemplated by Sections
5.01(i), on or prior to the Restatement Effective Date.
6.12 Tax Returns and Payments. Each Credit Party filed all federal
income tax returns and all other material tax returns, domestic and foreign,
required to be filed by it and has paid all material taxes and assessments
payable by it which have become due, other than those not yet delinquent and
except for those contested in good faith. Holdings, PXI and each of its
Subsidiaries has paid, or has provided adequate reserves (in accordance with
GAAP) for the payment of, all federal, state and foreign income taxes applicable
for all prior fiscal years and for the current fiscal year to the date hereof.
There is no material action, suit, proceeding, investigation, audit, or claim
now pending or, to the knowledge of the Borrower or any of its subsidiaries,
threatened by any authority regarding any taxes relating to the Borrower or any
of its subsidiaries. Neither the Borrower nor any of its subsidiaries has
entered into an agreement or waiver or been requested to enter into an
agreement or waiver extending any statute of limitations relating to the payment
or collection of taxes of the Borrower or any of its subsidiaries.
6.13 Compliance with ERISA. Each Plan is in compliance with its terms
and with ERISA and the Code; each Plan (and each related trust, if any), which
is intended to be qualified under Section 401(a) of the Code has received a
determination letter from the Internal Revenue Service to the effect that it
meets the requirements of Section 401(a) and 501(a) of the Code; no Reportable
Event has occurred with respect to a Plan other than as set forth in Schedule
IV; no Plan is insolvent or in reorganization; no Plan has an Unfunded Current
Liability in excess of $2,500,000 and the aggregate Unfunded Current Liabilities
for all Plans does not exceed $2,500,000; no Plan has an accumulated or waived
funding deficiency or permitted decreases in its funding standard account or has
applied for an extension of any amortization period within the meaning of
Section 412 of the Code or Section 303 or 304 of ERISA; all contributions
required to be made with respect to a Plan have been timely made; no Credit
Party nor any of its ERISA Affiliates has
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incurred any liability to or on account of a Plan pursuant to Section 409,
502(i), 502(1), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or
Section 401(a)(29), 4971 or 4975 of the Code, or expects to incur any liability
under any of the foregoing Sections with respect to any Plan; no proceedings
have been instituted to terminate or appoint a trustee to administer any Plan;
no condition exists which presents a risk to any Credit Party or any ERISA
Affiliate of incurring a liability to or on account of a plan pursuant to the
foregoing provisions of ERISA and the Code; no action, suit, proceeding,
hearing, audit or investigation with respect to the administration, operation or
the investment of assets of any Plan (other than routine claims for benefits) is
pending, expected or threatened; except to the extent any breach of the
representations set forth above in Section 6.13 (except where specific standards
have established) could not have a Material Adverse Effect. Using actuarial
assumptions and computation methods consistent with Part 1 of subtitle E of
Title IV of ERISA, the aggregate liabilities of all Credit Parties and their
ERISA Affiliates to all Plans which are multiemployer plans (as defined in
Section 4001(a)(3) of ERISA) in the event of a complete withdrawal therefrom, as
of the close of the most recent fiscal year of each such Plan ended prior to the
date of the most recent Credit Event would not exceed $1,000,000. Each group
health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the
Code) which covers or has covered employees or former employees of any Credit
Party or any ERISA Affiliate has at all times been operated in compliance with
the provisions of Part 6 of subtitle B of Title I of ERISA and Section 4980B of
the Code. No lien imposed under the Code or ERISA on the assets of any Credit
Party or any ERISA Affiliate exists or is likely to arise on account of any Plan
which would violate Section 8.02 and all Credit Parties and their Subsidiaries
do not maintain or contribute to any employee welfare benefit plan (as defined
in Section 3(1) of ERISA) which provides benefits to retired employees or other
former employees (other than as required by Section 601 of ERISA) or any
employee pension benefit plan (as defined in Section 3(2) of ERISA) the
obligations with respect to which could reasonably be expected to have a
Material Adverse Effect.
6.14 Subsidiaries. Schedule V hereto lists each Subsidiary of PXI, and
the direct and indirect ownership interest of PXI therein, in each case as of
the Restatement Effective Date.
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6.15 Patents, etc. PXI and each of its Subsidiaries owns or holds a
valid license to use all material patents, trademarks, servicemarks, trade
names, copyrights, licenses and other rights, that are necessary for, and no
restriction applicable to any such patent, trademark, servicemark, trade name,
copyright, license or other right would interfere in any material respect with,
the operation of their businesses taken as a whole as presently conducted and as
proposed to be conducted.
6.16 Compliance with Statutes. etc. (a) Each Credit Party is in
compliance with all applicable statutes, regulations and orders of, and all
applicable restrictions imposed by, all governmental bodies, domestic or
foreign, in respect of the conduct of its business and the ownership of its
property (including applicable statutes, regulations, orders and restrictions
relating to environmental standards and controls), except such noncompliance as
is not likely to, in the aggregate, have a Material Adverse Effect.
(b) Each Credit Party is in compliance with all applicable
Environmental Laws governing its business for which failure to comply is likely
to have a Material Adverse Effect, and no Credit Party is liable for any
material penalties, fines or forfeitures for failure to comply with any of the
foregoing in the manner set forth above. All licenses, permits, registrations or
approvals required for the business of any Credit Party, as conducted as of the
Restatement Effective Date, under any Environmental Law have been secured and
each Credit Party is in substantial compliance therewith, except such licenses,
permits, registrations or approvals the failure to secure or to comply therewith
is not likely to have a Material Adverse Effect. No Credit Party is in any
respect in noncompliance with, breach of or default under any applicable writ,
order, judgment, injunction, or decree to which such Credit Party is a party or
which would affect the ability of such Credit Party to operate any Real Property
and no event has occurred and is continuing which, with the passage of time or
the giving of notice or both, would constitute noncompliance, breach of or
default thereunder, except in each such case, such noncompliance, breaches or
defaults as are not likely to, in the aggregate, have a Material Adverse Effect.
There are as of the Restatement Effective Date no Environmental Claims pending
or, to the best knowledge of any Credit Party, threatened, which (a) question
the validity, term or entitlement of such Credit Party for any permit, license,
order or registration required for the operation of any facility which such
Credit Party currently operates and (b) wherein an unfavorable decision, ruling
or
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finding would be reasonably likely to have a Material Adverse Effect. There are
no facts, circumstances, conditions or occurrences on any Real Property or, to
the knowledge of any Credit Party, on any property adjacent to any such Real
Property that could reasonably be expected (i) result in an Environmental Claim
against such Credit Party or any Real Property of such Credit Party, or (ii) to
cause such Real Property to be subject to any restrictions on the ownership,
occupancy, use or transferability of such Real Property under any Environmental
Law, except in each such case, such Environmental Claims or restrictions that
individually or in the aggregate are not reasonably likely to have a Material
Adverse Effect.
(c) Hazardous Materials have not at any time been (i) generated, used,
treated or stored on, or transported to or from, any Real Property of any Credit
Party or (ii) Released on any Real Property, in each case where such occurrence
or event is reasonably likely to have a Material Adverse Effect.
6.17 Properties. Except as set forth in Schedule VI, each Credit Party
has good and legal title to all properties owned by it and valid and subsisting
leasehold interests in all properties leased by it, in each case, including all
property reflected in the financial statements referred to in Section 6.10(b)
(except as sold or otherwise disposed of since the date of the January 27, 1997
financial statements in the ordinary course of business) free and clear of all
Liens, other than Liens permitted by Section 8.02. Schedule VI contains a true
and complete list of each Real Property owned and each Real Property leased by
any Credit Party on the Restatement Effective Date and the type of interest
therein held by such Credit Party.
6.18 Labor Relations; Collective Barqaining Agreements. (a) Set forth
on Schedule VII hereto is a list and description (including dates of
termination) of all collective bargaining agreements between or applicable to
any Credit Party and any union, labor organization or other bargaining agent in
respect of the employees of any Credit Party on the Restatement Effective Date.
(b) No Credit Party is engaged in any unfair labor practice that is
reasonably likely to have a Material Adverse Effect. There is (i) no significant
unfair labor practice complaint pending against any Credit Party or, to the best
knowledge of any Credit Party, threatened against it, before the National Labor
Relations Board, and no significant griev-
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ance or significant arbitration proceeding arising out of or under any
collective bargaining agreement is now pending against any Credit Party or, to
the best knowledge of any Credit Party, threatened against it, (ii) no
significant strike, labor dispute, slowdown or stoppage is pending against any
Credit Party or, to the best knowledge of any Credit Party, threatened against
it and (iii) to the best knowledge of each Credit Party, no union representation
question exists with respect to the employees of such Credit Party, except (with
respect to any matter specified in clause (i), (ii) or (iii) above, either
individually or in the aggregate) such as is not reasonably likely to have a
Material Adverse Effect.
6.19 Indebtedness. Schedule VIII sets forth a true and complete list
of (x) all Indebtedness (other than intercompany indebtedness) of PXI and each
of its Subsidiaries outstanding as of the Restatement Effective Date and which
is to remain outstanding after the Restatement Effective Date and (y) all
agreements existing on the Restatement Effective Date and which are to remain
outstanding after the Restatement Effective Date pursuant to which PXI or any of
its Subsidiaries is entitled to incur Indebtedness (other than intercompany
indebtedness) (whether or not any condition to such incurrence could be met)
(collectively, as in effect and outstanding on the Restatement Effective Date
and without giving effect to any extension, renewal or refinancing thereof, the
"Permitted Existing Indebtedness"), in each case showing the aggregate principal
amount thereof and the name of the respective borrower and any other entity
which directly or indirectly guaranteed such debt.
6.20 Restrictions on Subsidiaries. Except for restrictions contained
in the Credit Documents and the PXI Senior Note Documents, as of the Restatement
Effective Date there are no contractual or consensual restrictions on any Credit
Party which prohibit or otherwise restrict (i) the transfer of cash or other
assets (x) between PXI and any of its Subsidiaries or (y) between any
Subsidiaries of PXI or (ii) the ability of any Credit Party or any of its
Subsidiaries to grant security interests to the Banks in their respective
assets.
6.21 PXI Senior Notes, etc. As of the Restatement Effective Date, the
PXI Senior Notes have been duly authorized, issued and delivered in accordance
with applicable law.
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SECTION 7. Affirmative Covenants. PXI, the Borrower and Xtra covenant
and agree that on the Restatement Effective Date and thereafter for so long as
this Agreement is in effect and until the Revolving Commitments have terminated,
no Letters of Credit are outstanding and the Loans, Unpaid Drawings together
with interest, Fees and all other Obligations (other than any indemnities
described in Section 12.13 hereof which are not then due and payable) incurred
hereunder are paid in full:
7.01 Information Covenants. PXI and the Borrower will furnish to each
Bank:
(a) Annual Financial Statements. Within 90 days after the close of
each fiscal year of PXI, the consolidated and consolidating balance sheets of
PXI and its Subsidiaries, as at the end of such fiscal year and the related
statements of income and cash flows (other than consolidating annual statements
of cash flows) for such fiscal year, setting forth comparative figures for the
preceding fiscal year, and in the case of such consolidated statements examined
by Coopers & Lybrand (or other independent certified public accountants of
recognized National standing acceptable to the Required Banks) whose opinion
shall not be qualified as to the scope of audit and as to the status of PXI or
any of its Subsidiaries as a going concern, together, in each case, with a
certificate of the accounting firm referred to above stating that in the course
of its regular audit of the business of PXI and its Subsidiaries, which audit
was conducted in accordance with generally accepted auditing standards, such
accounting firm has obtained no knowledge of any payment default or Default or
Event of Default under any of Sections 8.09, 8.10 and 8.11 which has occurred
and is continuing or, if in the opinion of such accounting firm such a Default
or Event of Default has occurred and is continuing, a statement as to the nature
thereof.
(b) Quarterly Financial Statements. As soon as available and in any
event within 45 days after the close of each of the first three quarterly
accounting periods in each fiscal year of PXI, the consolidated and
consolidating balance sheets of PXI and its Subsidiaries, as at the end of such
quarterly period and the related statements of income and cash flows (other than
consolidating quarterly statements of cash flows) for such quarterly period and
for the elapsed portion of the fiscal year ended with the last day of such
quarterly period, and setting forth commencing with the quarterly statements for
the period ended in May 1997, comparative figures for the related periods in the
prior fiscal
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year, in each case, certified by PXI in a certificate signed by an Authorized
Officer, subject to changes resulting from audit and normal year-end audit
adjustments.
(c) Monthly Reports. As soon as practicable, and in any event within
30 days, after the end of each monthly accounting period of each fiscal year,
the consolidated and consolidating operating reports for PXI and its
Subsidiaries for such period, in reasonable detail and in a form acceptable to
the Agents.
(d) Budgets: etc. Not less than 30 days after the commencement of each
fiscal year of PXI a budget in form satisfactory to the Agents prepared by PXI
for each of the four fiscal quarters of such fiscal year, setting forth, with
appropriate discussion, the principal assumptions upon which such budgets are
based. Together with each delivery of consolidated financial statements of PXI
pursuant to Section 7.01(a) and (b), a comparison of the current year to date
financial results (other than in respect of the balance sheets and statements of
cash flow included therein) against the budgets required to be submitted
pursuant to this clause (d) shall be presented.
(e) Officer's Certificates. At the time of the delivery of the
financial statements provided for in Section 7.01(a) and (b), a certificate of
PXI signed by an Authorized Officer to the effect that no Default or Event of
Default exists or, if any Default or Event of Default does exist, specifying the
nature and extent thereof, which certificate shall set forth the calculations
required to establish whether PXI and its Subsidiaries were in compliance with
the provisions of Section 8.04 and Sections 8.09, 8.10 and 8.11, as at the end
of such fiscal quarter or year, as the case may be.
(f) Notice of Default or Litigation. Promptly, and in any event within
three Business Days after an officer of PXI or the Borrower obtains knowledge
thereof, notice of (x) the occurrence of any event which constitutes a Default
or Event of Default, which notice shall specify the nature thereof, the period
of existence thereof and what action the appropriate Credit Party proposes to
take with respect thereto and (y) the commencement of or any significant
development in any litigation or governmental proceeding pending against
Holdings, PXI or any of its Subsidiaries which could have a Material Adverse
Effect or a material adverse effect on the ability of any Credit Party to
perform its obligations hereunder or under any other Credit Document.
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(g) Environmental Matters. Promptly upon obtaining knowledge thereof,
notice of (i) any pending or threatened Environmental Claim against Holdings,
PXI or any of its Subsidiaries or any Real Property of Holdings, PXI or any of
its Subsidiaries unless such Environmental Claim could not, individually or when
aggregated with all other such Environmental Claims, reasonably be expected to
have a Material Adverse Effect; (ii) any condition or occurrence on any Real
Property of Holdings, PXI or any of its Subsidiaries that (a) results in
material noncompliance by Holdings, PXI or such Subsidiary with any applicable
Environmental Law, or (b) could reasonably be anticipated to result in an
Environmental Claim against Holdings, PXI or such Subsidiary or any Real
Property of Holdings, PXI or such Subsidiary, unless, with respect to clauses
(a) and (b) above, such noncompliance or such Environmental Claim could not,
individually or when aggregated with all other such non-compliance claims,
reasonably be expected to have a Material Adverse Effect; (iii) any condition or
occurrence on any Real Property of Holdings, PXI or any of its Subsidiaries that
could reasonably be anticipated to cause such Real Property to be subject to any
restrictions on the ownership, occupancy, use or transferability of such Real
Property under any Environmental Law unless such restrictions could not,
individually or when aggregated with all other such restrictions, reasonably be
expected to have a Material Adverse Effect; and (iv) the taking of any removal
or remedial action in response to the actual or alleged presence of any
Hazardous Material on any Real Property of Holdings, PXI or any of its
Subsidiaries, unless the presence of such Hazardous Materials and the removal or
remedial action in response thereto could not, individually or when aggregated
with all such other occurrences or events, reasonably be expected to have a
Material Adverse Effect. All such notices shall describe in reasonable detail
the nature of the claim, investigation, condition, occurrence or removal or
remedial action and the response thereto of Holdings, PXI or such Subsidiary. In
addition, each Credit Party will provide the Agents with copies of all material
written communications with any government or governmental agency relating to
Environmental Laws, all communications with any government or governmental
agency relating to Environmental Claims, and such detailed reports of any
Environmental Claim, in each case as may reasonably be requested in writing from
time to time by the Agents.
(h) Other Information. (i) Promptly upon transmission thereof, copies
of any filings and registrations with, and reports to, the SEC by any Credit
Party or any of
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its Subsidiaries, copies of all press releases and copies of all financial
statements, notices and reports that any Credit Party or any of its Subsidiaries
shall send to analysts or the holders of the PXI Senior Notes or any other
publicly issued debt of any Credit Party or any of its Subsidiaries (in each
case, to the extent not theretofore delivered to the Banks pursuant to this
Agreement) and (ii) with reasonable promptness, such other information or
documents (financial or otherwise) as the Administrative Agent on its own behalf
or on behalf of the Required Banks may reasonably request from time to time.
7.02 Books, Records and Inspections. PXI will, and will cause each of
its Subsidiaries to, permit, upon notice to the Chief Financial Officer or any
other Authorized Officer of PXI, officers and designated representatives of the
Administrative Agent or the Banks to visit and inspect any of the properties or
assets of PXI and any of its Subsidiaries in whomsoever's possession, and to
examine the books of account and other financial and operating records
(including, without limitation, any reports or "management letters" submitted by
independent accountants) of PXI and any of its Subsidiaries and discuss the
affairs, finances and accounts of PXI and any of its Subsidiaries with, and be
advised as to the same by, the officers and independent accountants of PXI or
such Subsidiary, all at such reasonable times and intervals and to such
reasonable extent as the Administrative Agent or any Bank may request.
7.03 Payment of Taxes. PXI will, and will cause each of its
Subsidiaries to, pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits, or upon any
properties belonging to it, prior to the date on which penalties attach thereto,
and all lawful claims which, if unpaid, might become a Lien or charge upon any
properties of PXI or any of its Subsidiaries, provided that neither PXI nor any
of its Subsidiaries shall be required to pay any such tax, assessment, charge,
levy or claim which is being contested in good faith and by proper proceedings
if it has maintained adequate reserves (in the good faith judgment of the
management of such Person) with respect thereto in accordance with GAAP.
7.04 Corporate Franchises. PXI will, and will cause each of its
Subsidiaries to, do or cause to be done, all things necessary to preserve and
keep in full force and effect its existence, material rights and authority to do
business, provided that any transaction permitted by Section 8.01 will not
constitute a breach of this Section 7.04.
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7.05 Compliance with Statutes etc. (a) PXI will, and will cause each
of its Subsidiaries to, comply with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property (including applicable Environmental Laws) other than those the
non-compliance with which (individually or in the aggregate) would not have a
Material Adverse Effect or a material adverse effect on the ability of any
Credit Party to perform its obligations under any Credit Document to which it is
party. Neither PXI nor any of its Subsidiaries will generate, use, treat, store,
Release or dispose of, or permit the generation, use, treatment, storage,
Release or disposal of Hazardous Materials on any of its Real Property, or
transport or permit the transportation of Hazardous Materials to or from any
such Real Property, except for quantities used or stored at such Real Properties
in material compliance with all applicable Environmental Laws and required in
connection with the normal operation, use and maintenance of such Real Property.
If required to do so under any applicable Environmental Law, each Credit Party
agrees to undertake, and agrees to cause each of its Subsidiaries to undertake,
any cleanup, removal, remedial or other action necessary to remove and clean up
any Hazardous Materials from any Real Property in accordance with the
requirements of all such applicable Environmental Laws and in accordance with
orders and directives of all governmental authorities; provided that no Credit
Party nor any of their Subsidiaries shall be required to take any such action
where same is being contested by appropriate legal proceedings in good faith by
such Credit Party or such Subsidiary.
(b) At the request of the Agents or the Required Banks, at any time
and from time to time, but in any event no more frequently than once in any
calendar year, each of the Borrower and Xtra will provide, at its sole cost and
expense, an environmental site assessment report concerning any Real Property of
the Borrower or Xtra or any of their respective Subsidiaries, prepared by an
environmental consulting firm approved by the Agents, indicating the presence or
Release of Hazardous Materials and the potential cost of any removal or remedial
action in connection with any Hazardous Materials on such Real Property,
provided that no such request may be made unless the Agents or the Required
Banks reasonably believe that (i) the Borrower or Xtra or any of their
respective Subsidiaries is in noncompliance with any Environmental Law with
respect to such Real Property and that such noncompliance could, individually,
or when aggregated with all such other noncompliance claims, reasonably be
expected
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to have a Material Adverse Effect, (ii) such non-compliance was not disclosed in
the environmental reports delivered in connection with the closing of the
Original Credit Agreement or (iii) an Event of Default is in existence. If the
Borrower or Xtra fails to provide the same after 60 days' written notice, the
Administrative Agent may order the same, and the Borrower or Xtra, as the case
may be, shall grant and hereby grants to the Administrative Agent and the Banks
and their agents access to such Real Property at all reasonable times and
without unreasonably interfering with the Borrower's or Xtra's operations and
specifically grant the Administrative Agent and the Banks an irrevocable
nonexclusive license, subject to the rights of tenants, to undertake such an
assessment all at the Borrower's or Xtra's, as the case may be, sole expense,
provided that the Borrower and Xtra shall have 120 days to obtain any necessary
governmental approvals to provide an environmental site assessment report that
includes subsurface soil or ground water sampling or analysis.
7.06 ERISA. As soon as possible and, in any event, within 15 days
after any Credit Party or any of its Subsidiaries or any ERISA Affiliate knows
or has reasonable cause to know of the occurrence of any of the following, PXI
will deliver to each of the Banks a certificate of PXI signed by an Authorized
Officer setting forth details as to such occurrence and the action, if any,
which such Credit Party, such Subsidiary or such ERISA Affiliate is required or
proposes to take, together with any notices required or proposed to be given to
or filed with or by such Credit Party, such Subsidiary, the ERISA Affiliate, the
PBGC, a Plan participant or the Plan administrator with respect thereto: that a
Reportable Event has occurred (except to the extent that PXI has previously
delivered to the Banks a certificate and notices (if any) concerning such event
pursuant to the next clause hereof); that a contributing sponsor (as defined in
Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA is subject
to the advance reporting requirement of PBGC Regulation Section 4043.61 (without
regard to subparagraph (b)(1) thereof), and an event described in subsection
.62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 is
reasonably expected to occur with respect to such Plan within the following 30
days; that an accumulated funding deficiency, within the meaning of Section 412
of the Code or Section 302 of ERISA has been incurred or an application may be
or has been made to the Secretary of the Treasury for a waiver or modification
of the minimum funding standard (including any required installment payments) or
an extension of any amortization period under
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Section 412 of the Code or Section 303 or 304 of ERISA with respect to a Plan;
that a Plan has been or may be terminated, reorganized, partitioned or declared
insolvent under Title IV of ERISA; that a Plan has an Unfunded Current Liability
giving rise to a lien under ERISA or the Code; that proceedings may be or have
been instituted to terminate or appoint a trustee to administer a Plan; that a
proceeding has been instituted pursuant to Section 515 of ERISA to collect a
delinquent contribution to a Plan; or that any Credit Party, any of its
Subsidiaries or any ERISA Affiliate will or may incur any material liability
(including any indirect, contingent or secondary liability) to or on account of
the termination of or withdrawal from a Plan under Section 4062, 4063, 4064,
4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under Section 4971,
401(a)(29), or 4975 of the Code or Section 409 or 502(i) or 502(1) of ERISA or
with respect to a group health plan (as defined in Section 607(1) of ERISA or
Section 4980B(g)(2) of the Code) under Section 4980B of the Code. PXI will
deliver to each of the Banks a complete copy of the Internal Revenue Service
Annual Report (Form 5500) of each Plan, other than a multiemployer plan (as
defined in Section 3(37) of ERISA), required to be filed with the Internal
Revenue Service and copies of any records, documents or other information that
must be furnished to the PBGC with respect to any Plan pursuant to Section 4010
of ERISA. In addition to any certificates or notices delivered to the Banks
pursuant to- the first sentence hereof, copies of (i) annual reports filed by
any Credit Party or any of its Subsidiaries or any ERISA Affiliate with respect
to any Plan and (ii) any material notices received by any Credit Party or any of
its Subsidiaries or any ERISA Affiliate from any governmental agency or court
with respect to any Plan, shall in either case be delivered to the Banks no
later than 15 days after the date such report or notice has been filed with the
Internal Revenue Service or received by Holdings or such Subsidiary or the ERISA
Affiliate, as applicable.
7.07 Good Repair. PXI will, and will cause each of its Subsidiaries
to, use its best efforts to ensure that its properties and equipment used or
useful in its business in whomsoever's possession they may be, are kept in good
repair, working order and condition, normal wear and tear excepted and, subject
to Section 8.04, that from time to time there are made in such properties and
equipment all needful and proper repairs, renewals, replacements, extensions,
additions, betterments and improvements thereto, to the extent and in the manner
customary for companies in similar businesses.
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7.08 End of Fiscal Years; Fiscal Quarters. PXI will, for financial
reporting purposes, cause (i) each of its, and of each of its Subsidiaries'
fiscal years to end on the last Saturday of January each year and (ii) each of
its, and each of its Subsidiaries' fiscal quarters to end on dates consistent
with the end of such fiscal years.
7.09 Maintenance of Property; Insurance. PXI will, and will cause each
of its Subsidiaries to, at all times maintain in full force and effect insurance
with carriers rated A- or better by A.M. Best (or such other carriers as are
acceptable to the Agents giving due consideration to market conditions and
availability for similar businesses in the same geographic region) in such
amounts, covering such risks and liabilities and with such deductibles or
self-insured retentions as are in accordance with normal industry practice,
provided that in no event will any such deductible or self-insured retention in
respect of liability claims or in respect of casualty damage exceed, in each
such case, $1,000,000 per occurrence, except that casualty damage insurance for
earthquake or windstorm (hurricane) may have a deductible of up to five percent
(5%) of values or as may be the standard for like businesses in the same
geographic area. At any time that insurance at the levels described in Schedule
IX is not being maintained by PXI and its Subsidiaries, PXI will notify the
Agents in writing thereof and, if thereafter notified by the Agents to do so,
PXI will obtain insurance at such levels at least equal to those set forth in
Schedule IX to the extent then generally available (but in any event within the
deductible or self-insured retention limitations set forth in the preceding
sentence) or otherwise as are acceptable to the Agents. PXI will furnish on the
Restatement Effective Date and annually thereafter to the Agents a summary of
the insurance carried in respect of it and its Subsidiaries and its or their
assets together with certificates of insurance and other evidence of such
insurance, if any, naming the Collateral Agent as mortgagee/secured party
and/or loss payee on applicable policies insuring the assets of PXI and its
Subsidiaries.
7.10 Additional Security; Further Assurances. (a) As and to the extent
requested from time to time by the Agents or the Required Banks, PXI will, and
will cause each of its Subsidiaries to, grant to the Collateral Agent, for the
benefit of the Secured Parties, security interests and mortgages in such assets
and properties of PXI or its Subsidiaries acquired after the Restatement
Effective Date and not otherwise covered by the original Security Documents,
other than assets encumbered by Liens permitted by Section 8.02(i),
(collectively, the "Additional Security Documents").
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Such security interests and mortgages shall be granted pursuant to documentation
satisfactory in form and substance to the Administrative Agent and shall
constitute valid and enforceable perfected security interests superior to and
prior to the rights of all third persons and subject to no other Liens except as
are permitted by Section 8.02 at the time of perfection thereof. The Additional
Security Documents or other instruments related thereto shall be duly recorded
or filed in such manner and in such places as are required by law to establish,
perfect, preserve and protect the Liens in favor of the Collateral Agent for the
benefit of the Secured Parties, required to be granted pursuant to the
Additional Security Documents and all taxes, fees and other charges payable in
connection therewith shall have been paid in full.
(b) PXI will, and will cause each of its Subsidiaries to, at its own
expense, make, execute, endorse, acknowledge, file and/or deliver to the
Collateral Agent from time to time such vouchers, invoices, schedules,
confirmatory assignments, conveyances, financing statements, transfer
endorsements, powers of attorney, certificates, real property surveys, reports
and other assurances or instruments and take such further steps relating to the
collateral covered by any of the Security Documents as the Collateral Agent may
reasonably require. Furthermore, PXI shall, and shall cause each of its
Subsidiaries to, cause to be delivered to the Collateral Agent such opinions of
counsel, title insurance and other related documents as may be requested by the
Collateral Agent to assure themselves that this Section 7.10 has been complied
with.
(c) At the written request of the Agents or the Required Banks given
only after, and as a result of, a change in such law and/or the rules and
regulations thereunder and/or in the interpretation of any thereof, in each case
occurring after the Restatement Effective Date and requiring the delivery of
such appraisals, PXI shall, and shall cause each of its Subsidiaries to, provide
to the Agents appraisals satisfying applicable requirements of the Real Estate
Appraisal Reform Amendments of the Financial Institution Reform, Recovery and
Enforcement Act of 1989 in respect of the Real Property of PXI and its
Subsidiaries constituting Collateral, in form and substance satisfactory to the
Agents.
(d) Each Credit Party hereto agrees that each action required by
clauses (a) through (d) of this Section 7.10 shall be completed as soon as
possible, but in no event later than 30 days (60 days in the case of clause (c)
above) after such action is requested to be taken by the Administrative Agent or
the Required Banks.
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7.11 Maintenance of Corporate Separateness. PXI will, and will cause
each of its Subsidiaries to, satisfy customary corporate formalities, including
the holding of regular board of directors' and shareholders' meetings and the
maintenance of corporate offices and records. Neither the Borrower nor any other
Subsidiary of PXI shall make any payment to a creditor of Holdings or PXI in
respect of any liability of Holdings or PXI, and no bank account of Holdings or
PXI shall be commingled with any bank account of the Borrower or any other
Subsidiary of PXI. Any financial statements distributed to any creditors of
Holdings or PXI shall, to the extent permitted by GAAP, clearly establish the
corporate separateness of Holdings and PXI from the Borrower and each of PXI's
other Subsidiaries. Finally, no Credit Party nor any of their Subsidiaries shall
take any action, or conduct its affairs in a manner, which is likely to result
in the separate corporate existence of Holdings or PXI from that of any or all
of PXI's Subsidiaries being ignored, or in the assets and liabilities of the
Borrower or any other Subsidiary of PXI being substantively consolidated with
those of Holdings or PXI in a bankruptcy, reorganization or other insolvency
proceeding.
SECTION 8. Negative Covenants. PXI, the Borrower and Xtra hereby
covenant and agree that on the Restatement Effective Date and thereafter for so
long as this Agreement is in effect and until the Commitments have terminated,
no Letters of Credit are outstanding and the Loans, Unpaid Drawings, together
with interest, Fees and all other Obligations (other than any indemnities
described in Section 12.13 hereof which are not then due and payable) incurred
hereunder, are paid in full:
8.01 Consolidation, Merger, Sale or Purchase of Assets, etc. PXI will
not, and will not permit any of its Subsidiaries to, wind up, liquidate or
dissolve its affairs, or enter into any transaction of merger or consolidation,
sell or otherwise dispose of all or any part of its property or assets (other
than inventory, obsolete equipment, excess equipment no longer needed in the
conduct of business or equipment being replaced with other equipment, in each
case in the ordinary course of business) or purchase, lease or otherwise acquire
(in one transaction or a series of related transactions) all or any part of the
property or assets of any Person (other than purchases, leases or other
acquisitions of inventory and equipment in the ordinary course of business) or
agree to do any of the foregoing at any future time, except that the following
shall be permitted:
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(a) Capital Expenditures to the extent within the limitations set
forth in Section 8.04;
(b) the investments, acquisitions and transfers or dispositions of
properties permitted pursuant to Section 8.05;
(c) (i) the merger or consolidation of any Subsidiary of PXI (other
than the Borrower or Xtra) with or into, or the liquidation thereof into, the
Borrower, Xtra or another Wholly-Owned Subsidiary of PXI which is a Subsidiary
Guarantor (so long as the Borrower, Xtra or such Subsidiary Guarantor is the
surviving corporation), and (iv) the conveyance, lease, sale or other transfer
of all or any part of the business, properties and assets of any Subsidiary of
PXI (other than the Borrower or Xtra) to the Borrower, Xtra or another
Wholly-Owned Subsidiary of PXI which is a Subsidiary Guarantor;
(d) leases of stores or warehouses by the Borrower, Xtra or their
Subsidiaries in the ordinary course of business and otherwise in compliance with
this Agreement;
(e) asset sales generating proceeds (A) individually in an amount
equal to or less than $25,000 or (B) individually in an amount greater than
$25,000 but in the aggregate for all such sales not in excess of $1,000,000 in
any fiscal year; provided that the Borrower shall deliver to the Administrative
Agent within thirty days of the end of the second and fourth fiscal quarters of
each fiscal year a schedule showing the asset sales made pursuant to this
Section 8.01(e)(B) during the previous two or four fiscal quarters respectively;
(f) the Hialeah & Dadeland Transfer;
(g) Asset Sales of the Florida Division Assets and the Rio Grande,
Melania and North Mayaquez properties in Puerto Rico for consideration at the
time of such Asset Sale having a value (including the value of any noncash
consideration, as determined in good faith by the Board of Directors of PXI) at
least equal to the appraised value thereof so long as at least 80% of such
consideration is in cash; provided that at the time of any such Asset Sales the
Borrower shall have delivered to the Agents a certificate describing such Asset
Sale and stating that it is permitted under this Section 8.01(g) and under the
PXI Senior Note Documents; and
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(h) any acquisition of assets (not including Capital Expenditures) to
be employed in the business of the Borrower, Xtra or their Subsidiaries;
provided that (x) there are no Loans then outstanding, (y) the Leverage Ratio
for the most recently ended Test Period shall have been no greater than 3.5:1.00
and (z) such acquisition (taken together with all such prior acquisitions and
purchases, redemptions or prepayments of PXI Senior Notes since the Restatement
Date pursuant to Section 8.12(b)(ii) do not exceed the lesser of (i) 75% of
Excess Cash Flow for the period from and including January 25, 1997 to and
including the last day of the fiscal quarter ending on or most recently ended
prior to such acquisition and (ii) $25,000,000.
To the extent the Required Banks waive the provisions of this Section
8.01 with respect to the disposition of any Collateral, or any Collateral is
disposed of as permitted by this Section 8.01, such Collateral in each case
shall be sold free and clear of the Liens in favor of the Secured Parties
created by the Security Documents and the Administrative Agent shall take such
actions (including, without limitation, directing the Collateral Agent to take
such actions) as the Administrative Agent deems appropriate in connection
therewith.
8.02 Liens. PXI will not, and will not permit any of its Subsidiaries
to, create, incur, assume or suffer to exist any Lien upon or with respect to
any property or assets of any kind (real or personal, tangible or intangible) of
PXI or any of its Subsidiaries, whether now owned or hereafter acquired, or sell
any such property or assets subject to an understanding or agreement, contingent
or otherwise, to repurchase such property or assets (including sales of accounts
receivable or notes with recourse to PXI or any of its Subsidiaries) or assign
any right to receive income, or file or permit the filing of any financing
statement under the UCC or any other similar notice of Lien under any similar
recording or notice statute, except:
(a) Liens for taxes not yet due and payable or Liens for taxes being
contested in good faith and by appropriate proceedings for which adequate
reserves (in the good faith judgment of the management of PXI) have been
established;
(b) Liens (other than any Lien imposed by ERISA) in respect of
property or assets of PXI, PXI or any of its Subsidiaries imposed by law which
were incurred in the ordinary course of business, such as carriers',
warehousemen's and mechanics' Liens, statutory landlords Liens, Liens in favor
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of customs and revenue authorities to secure payment of customs duties in
connection with the importation of goods, and other similar Liens arising in the
ordinary course of business, and (x) which, if any such property or asset is
material, do not in the aggregate materially detract from the value of such
property or assets or materially impair the use thereof in the operation of the
business of PXI or such Subsidiary or (y) which are being contested in good
faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or asset subject to such Lien;
(c) Liens created by or pursuant to this Agreement or the other Credit
Documents;
(d) Liens on the assets of PXI and its Subsidiaries created prior to,
but that will remain outstanding on and after, the Restatement Effective Date
and listed on Schedule X hereto, without giving effect to any subsequent
extensions or renewals thereof ("Permitted Liens");
(e) Liens (other than any Lien imposed by ERISA) incurred or deposits
made in the ordinary course of business in connection with (x) liability
insurance, workers' compensation, unemployment insurance and other types of
social security, or (y) to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations incurred in
the ordinary course of business, in an aggregate amount not to exceed $5,000,000
(exclusive of obligations in respect of borrowed money);
(f) leases or subleases granted to third Persons not interfering with
the ordinary course of business of the Borrower or any of its Subsidiaries;
(g) Capital Leases to the extent permitted under Section 8.03(b)
hereof;
(h) Permitted Encumbrances; and
(i) Liens (x) arising pursuant to purchase money mortgages securing
Indebtedness representing the purchase price (or financing of the purchase price
within 180 days after the respective purchase) of property or other assets
acquired by the Borrower, Xtra or any other operating Subsidiary Guarantor,
provided that (i) any such Liens attach only to the assets so purchased, (ii)
the Indebtedness secured by any such Lien does not exceed 100% of the purchase
price of the assets being purchased and (iii) the
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Indebtedness secured thereby is permitted by Section 8.03(b); or (y) existing on
specific tangible assets at the time acquired by the Borrower or any other
Subsidiary of PXI or on assets of a Person at the time such Person first becomes
a Subsidiary of PXI, provided that (i) any such Liens were not created at the
time of or in contemplation of the acquisition of such assets or Person by PXI
or any of its Subsidiaries, (ii) in the case of any such acquisition of a
Person, any such Lien attaches only to specific tangible assets of such Person
and not assets of such Person generally, (iii) the Indebtedness secured by any
such Lien does not exceed 100% of the fair market value of the asset to which
such Lien attaches, determined at the time of the acquisition of such asset or
the time at which such Person becomes a Subsidiary of PXI and (iv) the
Indebtedness secured thereby is permitted by Section 8.03(b).
8.03 Indebtedness. PXI will not, and will not permit any of its
Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement and the other
Credit Documents;
(b) Capitalized Lease Obligations, and other Indebtedness secured by
Liens permitted by Section 8.02(i), of the Borrower, Xtra or any other operating
Subsidiary Guarantor so long as the aggregate principal amount of all
Indebtedness permitted by this clause (b) that is incurred (i) in any fiscal
year of PXI does not exceed $3,000,000 and (ii) in the aggregate does not exceed
$20,000,000;
(c) Indebtedness under Interest Rate Protection Agreements of the
Borrower to the extent entered into in respect of the Subordinated Intercompany
Real Estate Note, provided that the Interest Rate Protection Agreements entered
into pursuant to this clause (ii) are, taken as a whole, in the opinion of the
Agents, reasonably likely to result in the incurrence by the Borrower of no
greater liability in respect of interest payments than the stated interest rate
liability of PXI in respect of a like principal amount of the PXI Senior Notes;
(d) Permitted Existing Indebtedness;
(e) Indebtedness of PXI evidenced by (i) the PXI Senior Notes and (ii)
any PXI Subordinated Notes outstanding on the Restatement Effective Date after
giving effect to the Refinancing;
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(f) Indebtedness evidenced by the Subordinated Intercompany Real
Estate Note or any of intercompany notes issued on or prior to the Initial
Borrowing Date;
(g) Other intercompany Indebtedness permitted by Section 8.05; and
(h) PXI Subordinated Notes incurred after the Restatement Effective
Date in an aggregate principal amount not to exceed $25,000,000; provided that
at the time of incurrence of any such PXI Subordinated Notes, PXI shall be in
compliance with Sections 8.09 and 8.10 hereof calculated on a pro forma basis
after giving effect to such incurrence.
8.04 Capital Expenditures. (a) PXI will not, and will not permit any
of its Subsidiaries to, incur Capital Expenditures except Capital Expenditures
made in compliance with this Section 8.04. During each fiscal year of PXI ending
after the Restatement Effective Date, Capital Expenditures shall be permitted to
be made by the Borrower, Xtra and their respective Subsidiaries in an aggregate
amount for all such Persons not in excess of $25,000,000 (or pro rata portion
thereof for the portion of the then-current fiscal year that has elapsed prior
to the Maturity Date) other than Capital Expenditures made with funds received
by the Borrower pursuant to Section 8.05(1).
(b) To the extent Capital Expenditures made in any fiscal year are
less than the amount set forth for such fiscal year in clause (a) above (without
taking into account any increase pursuant to this clause (b)), an amount equal
to 100% of such difference but no greater than $10,000,000 may be carried
forward and used by the Borrower, Xtra and their respective Subsidiaries to make
Capital Expenditures pursuant to clause (a) in the immediately succeeding fiscal
year of PXI.
8.05 Advances, Investments and Loans. PXI will not, and will not
permit any of its Subsidiaries to, lend money or credit or make advances to any
Person, or purchase or acquire any stock, obligations or securities of, or any
other interest in, or make any capital contribution to any Person, except:
(a) PXI and its Subsidiaries may invest in cash and Cash Equivalents;
(b) the Borrower, Xtra and Subsidiary Guarantors may acquire and hold
receivables owing to them, if created or
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acquired in its ordinary course of business and payable or dischargeable in
accordance with its customary trade terms;
(c) loans and advances to employees in the ordinary course of business
in an aggregate principal amount not to exceed $500,000 at any time outstanding
shall be permitted;
(d) Interest Rate Protection Agreements entered into in compliance
with Section 8.03(c) shall be permitted;
(e) advances, investments and loans existing on the Restatement
Effective Date (and which are to remain outstanding after the Restatement
Effective Date) and listed on Schedule XI hereto, without giving effect to any
additions thereto or replacements thereof shall be permitted;
(f) the Borrower, Xtra and Subsidiary Guarantors may acquire and own
investments (including debt obligations) received in connection with the
bankruptcy or reorganization of suppliers and customers and in settlement of
delinquent obligations of, and other disputes with, customers and suppliers in
the ordinary course of business;
(g) any Subsidiary of PXI may make advances, loans or contributions to
the Borrower, Xtra or any Subsidiary Guarantor in the ordinary course of
business;
(h) each Subsidiary of PXI may make (x) payments to its parent
corporation, PXI or Holdings, and PXI may make payments to Holdings, in each
case in satisfaction of its obligations under the Approved Tax Sharing Agreement
and/or (y) loans and/or advances to PXI and/or Holdings to the same extent as,
and in lieu of, Dividends otherwise permitted by Section 8.06(c);
(i) the Borrower and Xtra may make loans or advances to limited
partnerships in which the Borrower or Xtra, as the case may be, is a limited
partner for the purpose of developing shopping centers so long as the aggregate
amount of loans and advances permitted hereunder shall not exceed $3,000,000 at
any time outstanding;
(j) the Borrower and Xtra may make additional loans, advances and
investments of a nature not contemplated by the foregoing clauses (a) through
(i), provided that (x) all loans, advances and investments made pursuant to this
clause (i) shall not exceed $1,000,000 at any time outstanding and (y) no such
loan, advance or investment shall be made in or to (A) Holdings or its
Affiliates (other than
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Subsidiaries of PXI) or (B) a Subsidiary that is not, or which upon receipt
thereof does not become, a Subsidiary Guarantor;
(k) PXI may make the equity contributions to the Borrower and Xtra
required by Section 4.02(A)(c);
(1) PXI may make equity contributions to, or purchase common equity
of, the Borrower or Xtra, provided, that the proceeds of such equity
contributions or purchases shall be exclusively used by the Borrower or Xtra, as
the case may be, for the purpose of making Capital Expenditures; and
(m) the Hialeah & Dadeland Transfer shall be permitted.
8.06 Dividends, etc. PXI will not, and will not permit any Subsidiary
to, declare or pay any dividends (other than dividends payable solely in capital
stock of PXI) or return any capital to, its stockholders or authorize or make
any other distribution, payment or delivery of property or cash to its
stockholders as such, or redeem, retire, purchase or otherwise acquire, directly
or indirectly, for a consideration, any shares of any class of its capital stock
now or hereafter outstanding (or any warrants for or options or stock
appreciation rights in respect of any of such shares), or set aside any funds
for any of the foregoing purposes and PXI will not, and will not permit any of
its Subsidiaries to, purchase or otherwise acquire for consideration any shares
of any class of the capital stock of Holdings or PXI now or hereafter
outstanding (or any warrants for or options or stock appreciation rights issued
by such Person in respect of any such shares) (all of the foregoing
"Dividends"), except that:
(a) any Subsidiary of PXI may pay dividends to the Borrower, Xtra or a
Subsidiary Guarantor;
(b) any Subsidiary of PXI may pay dividends to its parent corporation,
and PXI may pay dividends to Holdings, in each case to the extent such dividends
are in satisfaction of, or otherwise reduce, such entity's obligations under an
Approved Tax Sharing Agreement; and
(c) PXI's Subsidiaries may pay cash dividends to PXI in an aggregate
amount necessary and to the extent immediately used by PXI to pay (i) accrued
fees and expenses arising from ongoing reporting and related requirements (or to
immediately dividend same to Holdings to be utilized immediately by Holdings to
pay such fees and expenses) and
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(ii) so long as no Default or Event of Default then exists or would exist as a
result thereof, interest on the PXI Senior Notes to the extent then due and
payable in accordance with the terms thereof (but only to the extent the funds
required for such interest have not been paid to PXI in respect of interest on
the Subordinated Intercompany Real Estate Note or Xtra's Subordinated
Intercompany Note.
8.07 Transactions with Affiliates. Holdings and PXI will not, and PXI
will not permit any of its Subsidiaries to, enter into any transaction or series
of transactions, whether or not in the ordinary course of business, with any
Affiliate other than on terms and conditions substantially as favorable (or more
favorable) to, PXI or such Subsidiary as would be obtainable by, PXI or such
Subsidiary at the time in a comparable arm's-length transaction with a Person
other than an Affiliate, except the foregoing shall not prohibit transactions
permitted pursuant to Section 8.05.
8.08 Chances in Business. Except as otherwise permitted by Sections
8.01 and 8.05, the Borrower and Xtra will not alter the character of the
business of the Borrower and Xtra and their Subsidiaries from the business
(including grocery retailing and wholesaling) conducted by the Borrower and Xtra
and their Subsidiaries on the Restatement Effective Date.
8.09 EBITDA to Total Cash Interest Expense. PXI will not permit the
ratio of (x) EBITDA to (y) Total Cash Interest Expense for any Test Period
ending on the last day of any fiscal quarter set forth below to be less than the
amount set forth opposite such fiscal quarter below.
<TABLE>
<CAPTION>
Fiscal Ouarter Ending Ratio
- --------------------- -----
<S> <C>
May 18, 1997 1.50:1.00
August 9, 1997 1.50:1.00
November 1, 1997 1.50:1.00
January 31, 1998 1.50:1.00
May 23, 1998 1.50:1.00
August 15, 1998 1.50:1.00
November 7, 1998 1.50:1.00
January 30, 1999 1.75:1.00
May 22, 1999 1.75:1.00
August 14, 1999 1.75:1.00
November 6, 1999 1.75:1.00
January 29, 2000 2.00:1.00
</TABLE>
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<TABLE>
<CAPTION>
Fiscal Ouarter Ending Ratio
- --------------------- -----
<S> <C>
May 20, 2000 2.00:1.00
August 14 2000 2.00:1.00
November 4, 2000 2.00:1.00
January 27, 2001 2.25:1.00
May 19, 2001 2.25:1.00
August 11, 2001 2.25:1.00
November 3, 2001 2.25:1.00
January 26, 2002 2.25:1.00
May 18, 2002 2.25:1.00
August 10, 2002 2.25:1.00
November 2, 2002 2.25:1.00
January 25, 2003 2.25:1.00
</TABLE>
8.10 Consolidated Indebtedness to EBITDA. PXI will not permit the
ratio of (i) Consolidated Indebtedness on the last day of any fiscal quarter set
forth below to (ii) EBITDA for the Test Period ending at the end of such fiscal
quarter to be greater than the amount set forth opposite such fiscal quarter
below:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Ratio
- --------------------- -----
<S> <C>
May 18, 1997 6.50:1.00
August 9, 1997 6.75:1.00
November 1, 1997 6.75:1.00
January 31, 1998 6.50:1.00
May 23, 1998 6.25:1.00
August 15, 1998 6.00:1.00
November 7, 1998 5.75:1.00
January 30, 1999 5.50:1.00
May 22, 1999 5.50:1.00
August 14, 1999 5.50:1.00
November 6, 1999 5.50:1.00
January 29, 2000 5.00:1.00
May 20, 2000 5.00:1.00
August 14 2000 5.00:1.00
November 4, 2000 5.00:1.00
January 27, 2001 4.50:1.00
May 19, 2001 4.50:1.00
August 11, 2001 4.50:1.00
November 3, 2001 4.50:1.00
January 26, 2002 4.50:1.00
May 18, 2002 4.50:1.00
</TABLE>
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<TABLE>
<S> <C>
August 10, 2002 4.50:1.00
November 2, 2002 4.50:1.00
January 25, 2003 4.50:1.00
</TABLE>
8.11 Senior Secured Debt to EBITDA. PXI will not permit the ratio of
(i) Senior Secured Debt on the last day of any fiscal quarter to (ii) EBITDA for
the Test Period ending at the end of such fiscal quarter to be greater than
1.50:1.00.
8.12 Limitation on Voluntary Payments; Preferred Stock. (a) PXI will
not, and will not permit any of its Subsidiaries to:
(i) make (or give any notice in respect of) any voluntary or
optional payment or prepayment of principal on or voluntary or optional
redemption of or acquisition for value of (including, without limitation, by way
of depositing with the trustee with respect thereto money or securities before
due for the purpose of paying when due), the Indebtedness described in Section
8.03(d) (except for the AFICA Bonds included therein), (e) (other than
cancellation of the $10 million subordinated note of PXI in favor of Holdings as
part of the Hialeah & Dadeland Transfer), (f) and (h);
(ii) amend or modify, or permit the amendment or modification
of, any provision of any such Indebtedness or any provision of its Certificate
of Incorporation or By Laws; or
(iii) issue any preferred or preference stock.
(b) Notwithstanding the foregoing Section 8.12(a) and so long
as no Default or Event of Default then exists (before and after giving effect to
the purchase, redemption or prepayment described below), PXI may purchase,
redeem or prepay PXI Senior Notes (i) on or after the date of any reduction of
the Total Revolving Commitment pursuant to Section 3.03(b)(III) in an amount
equal to up to 40% of the Net Equity Issuance Proceeds relating thereto or (ii)
at any other time provided in the case of this clause (ii) that (x) there are no
Revolving Loans then outstanding, (y) the Leverage Ratio for the most recently
ended Test Period shall have been no greater than 3.50:1.00 and (z) such
purchase, redemption or prepayment is made in an aggregate amount for all such
payments since the Restatement Effective Date (taken together with acquisitions
made during such period pursuant to Section 8.01(h)) not to exceed the lesser of
75% of Excess Cash Flow for the period from and including January 25, 1997 to
and including the last day of the fiscal quarter ending on
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<PAGE> 85
or most recently ended prior to such purchase, redemption or prepayment and
$25,000,000.
8.13 Issuance of Subsidiary Stock. PXI will not permit any of its
Subsidiaries to issue, sell, assign, pledge or otherwise encumber or dispose of
any shares of its capital stock or other equity securities (or warrants, rights
or options to acquire shares or other equity securities) except as part of the
Hialeah & Dadeland Transfer and except to the extent permitted by Sections
8.01(c) and 8.05 (to the extent such securities are pledged in favor of the
Collateral Agent), to PXI, the Borrower, Xtra or any Subsidiary Guarantor.
8.14 Limitation on Restrictions Affecting Subsidiaries. PXI will not,
and will not permit any Subsidiary to, directly, or indirectly, create or
otherwise cause or suffer to exist any encumbrance or restriction which
prohibits or limits the ability of PXI or any Subsidiary to (a) pay dividends or
make other distributions or pay any Indebtedness owed to any Credit Party or any
Subsidiary thereof, (b) make loans or advances to any Credit Party or any
Subsidiary thereof, (c) transfer any of its properties or assets to any Credit
Party or any Subsidiary thereof or (d) create, incur, assume or suffer to exist
any Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, other than encumbrances and restrictions arising under (i)
applicable law, (ii) this Agreement and the other Credit Documents, (iii)
Indebtedness permitted pursuant to Sections 8.03(b), (d) and (e), (iv) customary
provisions restricting subletting or assignment of any lease governing a
leasehold interest of any Credit Party or any of its Subsidiaries and (v)
customary restrictions on dispositions of real property interests found in
reciprocal easement agreements of any Credit Party or any of its Subsidiaries.
SECTION 9. Events of Default. Upon the occurrence of any of the
following specified events (each an "Event of Default"):
9.01 Payments. The Borrower shall (i) default in the payment when due
of any principal of the Loans or any Unpaid Drawing or (ii) default, and such
default shall continue for two or more Business Days, in the payment when due of
any interest on the Loans or Unpaid Drawings or any Fees or any other amounts
owing hereunder or under any other Credit Document; or
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<PAGE> 86
9.02 Representations, etc. Any representation, warranty or statement
made by any Credit Party herein or in any other Credit Document or in any
statement or certificate delivered or required to be delivered pursuant hereto
or thereto shall prove to be untrue in any material respect on the date as of
which made or deemed made; or
9.03 Covenants. Any Credit Party shall (a) default in the due
performance or observance by it of any term, covenant or agreement contained in
Sections 7.10, 7.11, or 8, or (b) default in the due performance or observance
by it of any term, covenant or agreement (other than those referred to in
Section 9.01, 9.02 or clause (a) of this Section 9.03) contained in this
Agreement and such default shall continue unremedied for a period of at least 15
days after notice to the defaulting party by any Agent or the Required Banks; or
9.04 Default Under Other Agreements. (a) Any Credit Party or any of
their respective Subsidiaries (collectively, the "Designated Parties") shall (i)
default in any payment in respect of any Indebtedness (other than the
Obligations) in excess of $1,000,000 individually or $5,000,000 in the aggregate
of such entities or (ii) default in the observance or performance of any
agreement or condition relating to any such Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause, any such Indebtedness to become due prior to its stated maturity; or (b)
any such Indebtedness of any Designated Party shall be declared to be due and
payable, or required to be prepaid other than by a regularly scheduled required
prepayment, prior to the stated maturity thereof; or
9.05 Bankruptcy, etc. Any Designated Party shall commence a voluntary
case concerning itself under Title 11 of the United States Code entitled
"Bankruptcy", as now or hereafter in effect, or any successor thereto (the
"Bankruptcy Code"); or an involuntary case is commenced against any Designated
Party and the petition is not controverted within 10 Business Days, or is not
dismissed within 60 days, after commencement of the case; or a custodian (as
defined in the Bankruptcy Code) is appointed for, or takes charge of, all or
substantially all of the property of any Designated Party; or any Designated
Party commences any other proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or
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similar law of any jurisdiction whether now or hereafter in effect relating to
any Designated Party; or there is commenced against any Designated Party any
such proceeding which remains undismissed for a period of 60 days; or any
Designated Party is adjudicated insolvent or bankrupt; or any order of relief or
other order approving any such case or proceeding is entered; or any Designated
Party suffers any appointment of any custodian or the like for it or any
substantial part of its property to continue undischarged or unstayed for a
period of 60 days; or any Designated Party makes a general assignment for the
benefit of creditors; or any corporate action is taken by any Designated Party
for the purpose of effecting any of the foregoing; or
9.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding
standard required for any plan year or part thereof under Section 412 of the
Code or Section 302 of ERISA or a waiver of such standard or extension of any
amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a
contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan
subject to Title IV of ERISA shall be subject to the advance reporting
requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph
(b)(1) thereof), and an event described in subsection .62, .63, .64, .65, .66,
.67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected to occur
with respect to such Plan within the following 30 days, any Plan is, shall have
been or is reasonably likely to have a trustee appointed to administer such
Plan, any Plan is, shall have been or is reasonably likely to be terminated or
the subject of termination proceedings under ERISA, any Plan shall have an
Unfunded Current Liability, any Designated Party or any ERISA Affiliate has
incurred or is reasonably likely to incur a liability to or on account of a Plan
under Section 409, 502(i), 502(1), 515, 4062, 4063, 4064, 4069, 4201, 4204 or
4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code, or on account of
a group health plan (as defined in Section 607(1) of ERISA or Section
4980B(g)(2) of the Code) under Section 4980B of the Code, or any Designated
Party or any ERISA Affiliate has incurred or is reasonably likely to incur
liabilities pursuant to one or more employee welfare benefit plans (as defined
in Section 3(1) of ERISA) that provide benefits to retired employees or other
former employees (other than as required by Section 601 of ERISA) or employee
pension benefit plans (as defined in Section 3(2) of ERISA); (b) there shall
result from any event or events described in clause (a) of this Section 9.06,
the imposition of a lien, the granting of a security interest, or a liability or
a material risk of incurring a liability; and
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(c) which lien, security interest or liability referred to in clause (b) of this
Section 9.06, in the opinion of the Required Banks, will have a Material Adverse
Effect; or
9.07 Security Documents. On and after the date required to be filed
and/or recorded pursuant to Section 5.01 or 7.11, any Security Document shall
cease to be in full force and effect, or shall cease to give the Collateral
Agent on behalf of the Secured Parties the material Liens, rights, powers and
privileges purported to be created thereby in favor of the Collateral Agent, or
any Credit Party shall default in the due performance or observance of any term,
covenant or agreement on its part to be performed or observed pursuant to any
such Security Document; or
9.08 Guaranties. The Guaranties or any provision thereof shall cease
to be in full force and effect, or any Guarantor thereunder or any Person acting
by or on behalf of such Guarantor shall deny or disaffirm such Guarantor's
obligations under any Guaranty or any Guarantor shall default in the due
performance or observance of any term, covenant or agreement on its part to be
performed or observed pursuant to any Guaranty; or
9.09 Judgments. One or more judgments or decrees shall be entered
against PXI and/or any of PXI's Subsidiaries (and not paid when due or fully
covered by insurance) involving a liability of $1,000,000 or more in the case of
any one such judgment or decree and $5,000,000 or more in the aggregate for all
such judgments and decrees for PXI and all PXI's Subsidiaries and all such
judgments or decrees shall not have been vacated, discharged or stayed or bonded
pending appeal within 30 days from the entry thereof; or
9.10 Chance of Control. A Change of Control shall have occurred;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent shall, upon the written
request of the Required Banks, by written notice to the Borrower, take any or
all of the following actions, without prejudice to the rights of the
Administrative Agent or any Bank to enforce its claims against the Borrowers,
except as otherwise specifically provided for in this Agreement (provided that,
if an Event of Default specified in Section 9.05 shall occur with respect to the
Borrower, the result which would occur upon the giving of written notice by the
Administrative Agent as specified in clauses (i) and (ii) below shall occur
automatically without the giving of any such notice): (i) declare the Total
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Revolving Commitment terminated, whereupon the Revolving Commitment of each Bank
shall forthwith terminate immediately and any Commitment Commission shall
forthwith become due and payable without any other notice of any kind; (ii)
declare the principal of and any accrued interest in respect of all Loans and
all obligations owing hereunder (including Unpaid Drawings) to be, whereupon the
same shall become, forthwith due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by each
Borrower; (iii) direct the Collateral Agent to enforce any or all of the Liens
and security interests created pursuant to the Security Documents; (iv)
terminate any Letter of Credit which may be terminated in accordance with its
terms; and (v) direct the Borrower to pay (and the Borrower hereby agrees upon
receipt of such notice, or upon the occurrence of any Event of Default specified
in Section 9.05 in respect of the Borrower, it will pay) to the Administrative
Agent at the Payment Office such additional amounts of cash, to be held as
security for the Borrower's reimbursement obligations in respect of Letters of
Credit then outstanding equal to the aggregate Stated Amount of all Letters of
Credit then outstanding.
SECTION 10. Definitions. As used herein, the following terms shall
have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural the singular:
"Additional PXI Senior Note Documents" shall mean and include each of
the Additional PXI Notes and all securities purchase agreements, indentures and
other documents and agreements related thereto.
"Additional PXI Senior Notes" shall mean the aggregate of $85,000,000
of Senior Notes due August 1, 2003, issued by PXI at or prior to the Restatement
Effective Date.
"Additional Security Documents" shall have the meaning provided in
Section 7.10.
"Adjusted Cash Flow" for any period (taken as one accounting period)
shall mean Consolidated Net Income for such period (after provision for taxes)
plus the amount of all non-cash charges (including, without limitation,
amortization, depreciation, deferred tax expense and non-cash interest expense)
minus any non-cash credits (including in respect of deferred taxes) in each case
that were deducted in arriving at Consolidated Net Income for such fiscal period
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less the gains from sales of assets (other than sales of inventory and equipment
in the ordinary course of business) that were added in arriving at Consolidated
Net Income for such period.
"Adjusted Percentage" shall mean (x) at a time when no Bank Default
exists, for each Bank such Bank's Percentage and (y) at a time when an Bank
Default exists (i) for each Bank that is a Defaulting Bank, zero and (ii) for
each Bank that is a Non-Defaulting Bank, the percentage determined by dividing
such Bank's Revolving Commitment at such time by the Adjusted Total Revolving
Commitment at such time, it being understood that all references herein to
Revolving Commitments at a time when the Total Revolving Commitment has been
terminated shall be references to the Revolving Commitments in effect
immediately prior to such termination, provided that (A) an increase in a Bank's
Adjusted Percentage pursuant to the foregoing upon the occurrence of a Bank
Default will only be effected to the extent that after giving effect to such
increase, and any repayment of Revolving Loans pursuant to Section 4.02(A)(a) or
otherwise, the sum of (x) such Bank's new Adjusted Percentage of L/C
Outstandings and Swingline Loans plus (y) the outstanding principal amount of
such Bank's Revolving Loans equals its Revolving Commitment and (B) any changes
to the Adjusted Percentages not effected as a result of the preceding clause (A)
shall become effective on the first date or dates thereafter on which the
Revolving Outstandings are reduced, in each case to the extent permitted at such
time pursuant to clause (A).
"Adjusted Total Revolving Commitment" shall mean at any time the Total
Revolving Commitment less the aggregate Revolving Commitments of all Defaulting
Banks.
"Administrative Agent" shall mean Scotiabank in its capacity as
Administrative Agent hereunder and shall include any successor to the
Administrative Agent appointed pursuant to Section 11.09.
"AFICA Bonds" shall mean the Series A, B and C Industrial Revenue
Bonds issued on October 1, 1985, November 1, 1985 and December 5, 1985
respectively by the Puerto Rico Industrial, Medical and Environmental Pollution
Control Facilities Finance Authority.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including, but not limited to, all directors
and officers of such Person), controlled by, or under direct or indirect common
control with such Person. A Person shall be deemed to con-
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trol a corporation if such Person possesses, directly or indirectly, the power
(i) to vote 10% or more of the securities having ordinary voting power for the
election of directors of such corporation or (ii) to direct or cause the
direction of the management and policies of such corporation, whether through
the ownership of voting securities, by contract or otherwise.
"Agent" shall mean and include the Administrative Agent and the
Syndication Agent.
"Agreement" shall mean this Amended and Restated Credit Agreement, as
the same may be from time to time modified, amended and/or supplemented.
"Approved Tax Sharing Agreement" shall mean a tax sharing and/or tax
allocation agreement with Holdings in form and substance satisfactory to the
Agents and providing, inter alia, for an allocation for the payment of U.S.
income taxes on a basis no less favorable to PXI and its Subsidiaries than they
would be obligated to pay on a stand-alone basis.
"Asset Sale" shall mean and include (i) the sale, transfer or other
disposition by PXI or any of its Subsidiaries to any Person (other than the
Borrower or Xtra or any of their respective Wholly-Owned Subsidiaries) of any
asset of PXI or any of its Subsidiaries (other than (x) sales, transfers or
other dispositions in the ordinary course of business of inventory and/or
obsolete or excess equipment, (y) sales generating proceeds individually in an
amount equal to or less than $25,000 or (z) other sales generating proceeds in
the aggregate for all such sales not in excess of $1,000,000 in any fiscal year)
and (ii) the sale, transfer or other disposition by PXI to any Person of any
capital stock of the Borrower owned by PXI.
"Assignment Agreement" shall have the meaning provided in Section
12.04(b).
"Authorized Officer" shall mean any senior officer of any Person
designated as such in writing to the Administrative Agent by the President or
Chief Financial Officer of such Person.
"Bank" shall have the meaning provided in the first paragraph of this
Agreement.
"Bank Default" shall mean (i) the refusal (which has not been
retracted) of an Bank to make available its portion of any Borrowing of
Revolving Loans (including a Man-
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datory Borrowing) or to fund its portion of any unreimbursed drawing under
Section 2.02(c) or (ii) a Bank having notified the Administrative Agent and/or
the Borrower that it does not intend to comply with the obligations under
Section 1.01(A) or 1.01(C) or under Section 2.02(c), in either case as a result
of the appointment of a receiver or conservator with respect to such Bank at the
direction or request of any regulatory agency or authority.
"Bankruptcy Code" shall have the meaning provided in Section 9.05.
"Base Rate" shall mean the higher of (i) Federal Funds Rate plus 1/2
of 1%, or (ii) the Prime Lending Rate.
"Base Rate Loan" shall mean each Loan bearing interest at the rates
provided in Section 1.08(a).
"Base Rate Margin" shall mean 1.25% minus the then applicable
Reduction Percentage.
"Blockbuster PR" shall mean a division of the Borrower
"Blockbuster VI" shall mean a division of Xtra, a Wholly-Owned
Subsidiary of the Borrower.
"Borrower" shall mean Pueblo International Inc.
"Borrower Pledge Agreement" shall have the meaning provided in Section
5.01(f).
"Borrower Security Agreement" shall have the meaning provided in
Section 5.01(h).
"Borrowing" shall mean the incurrence of one Type of Loan by the
Borrower from all of the Banks on a given date (or resulting from conversions on
a given date), having in the case of Eurodollar Loans the same Interest Period,
provided that Base Rate Loans incurred pursuant to Section 1.10(b) shall be
considered part of any related Borrowing of Eurodollar Loans.
"Business Day" shall mean (i) for all purposes other than as covered
by clause (ii) below, any day excluding Saturday, Sunday and any day which shall
be in the City of New York or San Juan, Puerto Rico a legal holiday or a day on
which banking institutions are authorized by law or other governmental actions
to close and (ii) with respect to all notices and determinations in connection
with, and payments
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of principal and interest on, Eurodollar Loans, any day which is a Business Day
described in clause (i) and which is also a day for trading by and between banks
in U.S. dollar deposits in the New York interbank Eurodollar market.
"Capital Expenditures" shall mean, for any period, the aggregate of
all expenditures (whether paid in cash or accrued as liabilities, including
Capitalized Lease Obligations but excluding Tape Expenditures, by PXI and its
Subsidiaries during that period that, in conformity with GAAP, are or are
required to be included in the property, plant or equipment reflected in the
balance sheet of PXI and its Subsidiaries, provided that Capital Expenditures
shall in any event include the purchase price paid in connection with the
acquisition of any Person (including through the purchase of all of the capital
stock or other ownership interests of such Person or through merger or
consolidation) to the extent allocable to property, plant and equipment.
"Capital Lease," as applied to any Person, shall mean any lease of
any property (whether real, personal or mixed) by that Person as lessee which,
in conformity with GAAP, is accounted for as a capital lease on the consolidated
balance sheet of that Person.
"Capitalized Lease Obligations" shall mean all obligations under
Capital Leases of PXI and its Subsidiaries in each case taken at the amount
thereof accounted for as liabilities in accordance with GAAP.
"Cash Equivalents" shall mean (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than twelve months from the date of acquisition, (ii) U.S. dollar denominated
time deposits, certificates of deposit and bankers acceptances of (x) any Bank
that is a commercial bank having capital and surplus in excess of $500,000,000
or (y) any bank whose short-term commercial paper rating from S&P is at least
A-1 or the equivalent thereof or from Moody's is at least P-1 or the equivalent
thereof (any such bank, an "Approved Bank"), in each case with maturities of not
more than six months from the date of acquisition, (iii) commercial paper issued
by any Bank or Approved Bank or by the parent company of any Bank or Approved
Bank and commercial paper issued by, or guaranteed by, any industrial or
financial company with a short-term commercial paper rating of at least A-1 or
the equivalent thereof by S&P or at least P-1 or the equivalent thereof by
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Moody's (any such company, an "Approved Company"), or guaranteed by any
industrial company with a long term unsecured debt rating of at least A or A2,
or the equivalent of each thereof, from S&P or Moody's, as the case may be, and
in each case maturing within six months after the date of acquisition and (iv)
any fund or funds investing solely in investments of the type described in
clauses (i) through (iv) above.
"Cash Proceeds" shall mean, with respect to any Asset Sale, the
aggregate cash payments (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, but only as and
when so received) received by PXI or a Subsidiary of PXI, as the case may be,
from such Asset Sale.
"CC Percentage" shall mean (x) at all times that the Reduction
Percentage is less than 1/2 of 1%, .50%, (y) at all times that the Reduction
Percentage is 1/2 of 1%, 40%, and (z) at all times that the Reduction Percentage
is 3/4 of 1%, .30%.
"CELA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et
seq.
"Change of Control" shall mean (i) the direct or indirect acquisition
by any Person or group (as such term is defined in Section 13(d)(3) of the
Securities Exchange Act of 1934 (the "Exchange Act")), other than a group
composed in whole or substantially in whole of the Cisneros Group and/or the
Management Group, of beneficial ownership (as such term is defined in Rule 13d-3
promulgated under the Exchange Act) of 33-1/3% or more of the outstanding shares
of Voting Stock of Holdings, (ii) the failure of PXI to own 100% of the capital
stock of the Borrower or (directly or indirectly through the Borrower) Xtra,
(iii) the failure of the Cisneros Group to beneficially own and control 80% of
the Voting Stock of Holdings (and indirectly of PXI) or after an initial public
offering of Voting Stock of Holdings or PXI, a majority of the Voting Stock of
Holdings (and indirectly of PXI) or (iv) any "change of control" or similar
event shall occur under the PXI Senior Note Documents.
"Cisneros Group" shall mean the group of companies directly or
indirectly controlled by Gustavo or Ricardo Cisneros and trusts for the benefit
of their families.
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"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the date of this
Agreement and any subsequent provisions of the Code, amendatory thereof,
supplemental thereto or substituted therefor. For purposes of Sections 6.13,
7.06, and 9.06 of this Agreement and the defined terms "ERISA Affiliate" and
"Unfunded Current Liability," all references to the Code shall include the
comparable sections of the Puerto Rico Internal Revenue Code of 1994, as amended
from time to time, and the regulations promulgated and rulings issued
thereunder.
"Collateral" shall mean all of the Collateral as defined in each of
the Security Documents or other property of any Credit Party on which a Lien is
granted pursuant to any Security Document.
"Collateral Agent" shall mean Scotiabank acting as collateral agent
for the Secured Parties under the Security Documents.
"Commitment Commission" shall have the meaning provided in Section
3.01(a).
"Consolidated Indebtedness" shall mean the principal amount of all
Indebtedness of PXI and its Subsidiaries required to be accounted for as debt in
accordance with GAAP, determined on a consolidated basis.
"Consolidated Net Income" shall mean for any period, the consolidated
net income (or loss) of PXI and its Subsidiaries for such period taken as a
single accounting period determined in conformity with GAAP provided that there
shall be excluded the income (or loss) of any Person in which any other Person
(other than the Borrower, Xtra or a Wholly-Owned Subsidiary of the Borrower or
Xtra) has a joint interest, except to the extent of the amount of dividends or
other distributions actually paid to the Borrower or Xtra by such Person during
such period.
"Contingent Obligations" shall mean as to any Person any obligation of
such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obliger") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(a) to purchase any such primary obligation or any property constituting direct
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or indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such primary obligation or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obliger, (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (d) otherwise to assure or hold harmless the owner of
such primary obligation against loss in respect thereof; provided, however, that
the term Contingent Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.
"Credit Documents" shall mean this Agreement, the Notes, the Security
Documents and the Subsidiary Guaranty.
"Credit Event" shall mean and include the making of a Loan and the
issuance of a Letter of Credit.
"Credit Party" shall mean each of (i) PXI, (ii) the Borrower, (iii)
Xtra and (iv) the other Subsidiary Guarantors.
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, specified in Section 9 would constitute an Event of
Default.
"Defaulting Bank" shall mean any Bank with respect to which a Bank
Default is in effect.
"Designated Parties shall have the meaning provided in Section 9.04.
"Dividends" shall have the meaning provided in Section 8.06.
"EBIT" shall mean, for any period, Consolidated Net Income, before
interest income, interest expense, LIFO adjustment and provision for income
taxes and Puerto Rico withholding taxes and without giving effect to any
nonrecurring charges, extraordinary gains, extraordinary losses
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or gains from sales of assets (other than sales of inventory in the ordinary
course of business).
"EBITDA" for any period shall mean EBIT, adjusted by (i) adding
thereto the amount during such period of all amortization of intangibles and
depreciation plus all non-cash charges in respect of deferred profit sharing
plans, deferred compensation plans, pension plans and employee health plans and
(ii) subtracting therefrom the amount of Tape Expenditures during such period;
provided that for purposes of determining EBITDA for Sections 8.09, 8.10 and
8.11 for any period ending in May, August or November, EBITDA shall not include
any adjustment for non-cash charges in respect of deferred profit-sharing plans,
deferred compensation plans, pension plans and employee health plans during such
period, but EBITDA determined for any period ending in January shall include all
such adjustments since the end of the preceding fiscal year. In calculating
EBITDA for purposes of Sections 8.10 and 8.11, EBITDA for the Test Period ending
(i) on May 17, 1997 shall be multiplied by 4.0, (ii) on August 9, 1997 shall be
multiplied by 2.0 and (iii) on November 1, 1997 shall be multiplied by 4/3.
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations (other than internal reports prepared
by PXI or any of PXI's Subsidiaries solely in the ordinary course of such
Person's business and not in response to any third party action or request of
any kind) or proceedings relating in any way to any Environmental Law or any
permit issued, or any approval given, under any such Environmental Law
(hereafter, "Claims"), including, without limitation, (a) any and all Claims by
governmental or regulatory authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law, and (b) any and all Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials arising from alleged injury
or threat of injury to health, safety or the environment.
"Environmental Law" means any applicable Federal, state, foreign or
local statute, law, rule, regulation, ordinance, code and rule of common law now
or hereafter in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to the environment, health, safety
or Hazardous Materials, including, without limitation, CELA; RA; the Federal
Water
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Pollution Control Act, as amended, 33 U.S.C. Section. 1251 et seq; the Toxic
Substances Control Act, 15 U.S.C. Section 7401 et seq.; the Clean Air Act, 42
U.S.C. Section 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. Section
3808 et seq; the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq. and
any applicable state and local or foreign counterparts or equivalents.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect at the
date of this Agreement and any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with PXI or any Subsidiary of Holdings would be deemed
to be a "single employer" within the meaning of Section 414(b) or (c) of the
Code, and with respect to Sections 412 and 4971 of the Code and Section 302 of
ERISA, Section 414(b), (c), (m) or (o) of the Code.
"Eurodollar Loans" shall mean each Loan bearing interest at the rates
provided in Section 1.08(b).
"Eurodollar Margin" shall mean 2.25% less the then applicable
Reduction Percentage.
"Eurodollar Rate" shall mean with respect to each Interest Period for
a Eurodollar Loan, (i) the rate determined by the Administrative Agent to be the
arithmetic mean (rounded to the nearest 1/100 of 1%) of the offered quotation to
first-class banks in the London interbank Eurodollar market by each Reference
Bank for Dollar deposits of amounts in same day funds comparable to the
outstanding principal amount of the Eurodollar Loan of such Reference Bank for
which an interest rate is then being determined with maturities comparable to
the Interest Period to be applicable to such Eurodollar Loan, determined as of
11:00 A.M. (London time) on the date which is two Business Days prior to the
commencement of such Interest Period, divided (and rounded upward to the next
whole multiple of 1/16 of 1%) by (ii) a percentage equal to 100% minus the then
stated maximum rate of all reserve requirements (including, without limitation,
any marginal, emergency, supplemental, special or other reserves) applicable to
any member bank of the Federal Reserve System in respect of Eurocurrency
liabilities as defined in Regulation D (or any successor category of liabilities
under Regulation
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D), provided that if one or more of the Reference Banks fail to provide the
Administrative Agent with its aforesaid rate, then the Eurodollar Rate shall be
determined based on the rate or rates provided to the Administrative Agent by
the other Reference Bank or Banks.
"Event of Default" shall have the meaning provided in Section 9.
"Excess Cash Flow" shall mean, for any period, the remainder of (A)
the sum of (i) Adjusted Cash Flow for such period, and (ii) to the extent not
included in (A)(i) above, any amounts (net of reasonable fees, expenses and
other costs incurred in connection therewith) received by PXI or any of its
Subsidiaries in settlement of, or in payment of any judgments resulting from,
actions, suits or proceedings with respect to PXI or such Subsidiary from the
first day to the last day of such period, minus (B) the sum of (i) the increase
(or plus any decrease) in LIFO reserves established by PXI and its Subsidiaries
from the first day to the last day of such period, (ii) the sum of (x) the
excess of the amount of Capital Expenditures made during such period pursuant to
Section 8.04(a), as modified by Section 8.04(b), over all Capital Expenditures
made during such period pursuant to said Section 8.04(a) (as so modified) that
are financed by Indebtedness (other than the Revolving Loans hereunder) plus (y)
the amount, if any, of Capital Expenditures that the Borrower, Xtra and their
respective Subsidiaries may make pursuant to Section 8.04(a) in the next
following fiscal year in excess of the amount of Capital Expenditures set forth
in said Section for such next fiscal year as a result of the operation of
Section 8.04(b), (iii) all Third Party Debt Repayments made during such period,
and (iv) any Net Debt Issuance Proceeds and Net Equity Issuance Proceeds to the
extent included in Adjusted Cash Flow for such period.
"Existing Letter of Credit" shall mean each of the letters of credit
described in Schedule II.
"Existing PXI Senior Note Documents" shall mean and include each of
the Existing PXI Senior Notes and all securities purchase agreements, indentures
and other documents and agreements related thereto, all as in effect on March 1,
1997.
"Existing PXI Senior Notes" shall mean the aggregate $180,000,000 of
Senior Notes due 2003, issued by PXI at the time of the Initial Borrowing Date.
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"Facing Fee" shall have the meaning provided in Section 3.01(c).
"Federal Funds Rate" shall mean for any period, a fluctuating interest
rate equal for each day during such period to the weighted average of the rates
on overnight Federal Funds transactions with members of the Federal Reserve
System arranged by Federal Funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal Funds
brokers of recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to, or referred to in,
Section 3.01.
"Florida Division Assets" shall mean any of the retail stores and the
distribution center operated by Xtra in Florida and all equipment, inventory and
receivables constituting part of or arising from the business conducted at such
stores and the distribution center.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect on the date of this Agreement; it being
understood and agreed that determinations in accordance with GAAP for purposes
of Section 8, including defined terms as used therein, are subject (to the
extent provided therein) to Section 12.07(a).
"Guaranties" shall mean and include the guarantees set forth in
Section 13 of this Agreement and the Subsidiary Guaranty.
"Guarantor" shall mean and include PXI, Xtra and each Subsidiary
Guarantor.
"Hazardous Materials" means (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that
contained, electric fluid containing levels of polychlorinated biphenyls, and
radon gas; and (b) any chemicals, materials or substances defined as or included
in the definition of "hazardous substances," "hazardous waste," "hazardous
materials," "extremely hazardous waste," "restricted hazardous waste," "toxic
substances," "toxic pollutants," "contamin-
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ants," or "pollutants," or words of similar import, under any applicable
Environmental Law.
"Hialeah & Dadeland Transfer" shall mean, collectively, a transfer or
series of related transfers of the Hialeah and Dadeland properties as a result
of which Holdings owns, directly or indirectly, the Hialeah and Dadeland
properties and the subordinated note of PXI in favor of Holdings in the
principal amount of $10,000,000 (a copy of which is attached hereto as Exhibit
M) is satisfied.
"Holdings" shall mean PXC&M Holdings, Delaware corporation.
Inc., a Delaware corporation.
"Indebtedness" of any Person shall mean without duplication (i) all
indebtedness of such Person for borrowed money, (ii) the deferred purchase price
of assets or services (other than deferred allowance relating to merchandise)
which in accordance with generally accepted accounting principles would be shown
on the liability side of the balance sheet of such Person, (iii) the face amount
of all letters of credit issued for the account of such Person and, without
duplication, all drafts drawn thereunder, (iv) all Indebtedness of a second
Person secured by any Lien on any property owned by such first Person, whether
or not such indebtedness has been assumed, (v) all Capitalized Lease Obligations
of such Person, (vi) all obligations of such Person to pay a specified purchase
price for goods or services whether or not delivered or accepted, i.e.,
take-or-pay and similar obligations, (vii) all obligations of such Person under
Interest Rate Protection Agreements, (viii) all reimbursement or other monetary
obligations with respect to surety, performance and bid bonds, and (ix) all
Contingent Obligations of such Person, provided that Indebtedness shall not
include trade payables and accrued expenses, in each case arising in the
ordinary course of business.
"Initial Borrowing Date" shall have the meaning provided in the
Original Credit Agreement.
"Intercompany Mortgages" shall have the meaning provided in Section
5.01(i)(ii).
"Interest Period", with respect to any Loan, shall mean the interest
period applicable thereto, as determined pursuant to Section 1.09.
"Interest Rate Protection Agreement" shall mean any interest rate swap
agreement, any interest rate cap agreement, any interest rate collar agreement
or other similar
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agreement or arrangement designed to hedge the risks for a Person with respect
to, or otherwise manage, interest rates.
"L/C Fee" shall have the meaning provided in Section 3.01(b).
"L/C Outstandings" shall mean, at any time, the sum of, without
duplication, (i) the aggregate Stated Amount of all outstanding Letters of
Credit and (ii) the aggregate amount of all Unpaid Drawings.
"Leasehold" of any Person means all of the right, title and interest
of such Person as lessee or licensee in, to and under leases or licenses of
land, improvements and/or fixtures.
"Letter of Credit" shall have the meaning provided in Section 2.01(a).
"Letter of Credit Issuer" shall mean and include Scotiabank and/or its
Affiliates.
"Letter of Credit Request" shall have the meaning provided in Section
2.03(a).
"Leverage Ratio" shall mean the ratio described in Section 8.10.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement or any
lease in the nature thereof).
"Loan" shall mean each and every Loan made by any Bank hereunder,
including Revolving Loans and Swingline Loans.
"Management Group" shall mean the group of shareholders of Holdings
that are employees of PXI or its Subsidiaries.
"Mandatory Borrowing" shall have the meaning provided in Section
1.01(C).
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Adverse Effect" shall mean a material adverse effect on the
business, properties, assets, liabili-
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ties, condition (financial or otherwise) or prospects of the Borrower or PXI and
its Subsidiaries taken as a whole.
"Maturity Date" shall mean February 1, 2003.
"Maximum Swingline Amount" shall mean $5,000,000.
"Minimum Assignment Amount" shall mean, with respect to any assignment
by any Bank of its Revolving Commitment hereunder an amount equal to $5,000,000.
"Minimum Borrowing Amount" shall mean (i) for Base Rate Loans (other
than Swingline Loans), $1,000,000, (ii) for Eurodollar Loans $2,000,000 and
(iii) for Swingline Loans, $500,000.
"Moody's" shall mean Moody's Investors Services, Inc.
"Mortgages" shall mean deeds of trust, leasehold deeds of trust,
mortgages, leasehold mortgages or similar documents covering the Mortgaged
Properties located in Florida and the U.S. Virgin Islands.
"Mortgage Policies" shall have the meaning provided in Section
5.01(i).
"Mortgaged Properties" shall mean and include (i) all Real Properties
owned or leased by PXI or any of its Subsidiaries, to the extent designated as
such on Schedule VI hereto and (ii) each Real Property subjected to a mortgage
in favor of the Collateral Agent for the benefit of the Secured Parties pursuant
to Section 7.11.
"NationsBank" shall mean NationsBank, N.A. (South).
"Net Cash Proceeds" shall mean, with respect to any Asset Sale, the
Cash Proceeds resulting therefrom net of reasonable costs and expenses of sale
and related cash settlements (including payment of severance and other
termination costs, other current liabilities attaching to the assets sold and
retained by the seller and principal, premium and interest of Indebtedness other
than the Loans, required to be, and which is, repaid under the terms thereof as
a result of such Asset Sale) and incremental taxes paid or payable as a result
thereof.
"Net Debt Issuance Proceeds" shall mean the proceeds (net of
reasonable costs associated therewith) received from the incurrence of
Indebtedness.
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"Net Equity Issuance Proceeds" shall mean the proceeds (net of
underwriting discounts and commissions and other reasonable costs associated
therewith) received from the sale of equity.
"Non-Defaulting Bank" shall mean and include each Bank other than a
Defaulting Bank.
"Note" shall mean each Revolving Note and the Swingline Note.
"Notice of Borrowing" shall have the meaning provided in Section 1.02.
"Notice of Conversion" shall have the meaning provided in Section
1.06.
"Notice Office" shall mean the office of the Administrative Agent at
600 Peachtree Street, NE, Suite 2700, Atlanta, Georgia 30308, or such other
office as the Administrative Agent may designate to the Borrowers and the Banks
from time to time.
"Obligations" shall mean all amounts, direct or indirect, contingent
or absolute, of every type or description, and at any time existing, owing to
the Collateral Agent, any Agent or any Bank pursuant to the terms of this
Agreement or any other Credit Document.
"Participating Bank" shall have the meaning provided in Section
2.02(a).
"Payment Office" shall mean the office of the Administrative Agent in
Atlanta or such other office as the Administrative Agent may designate to the
Borrower and the Banks from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Percentage" shall mean at any time for each Bank, the percentage
obtained by dividing such Bank's Revolving Commitment by the Total Revolving
Commitment.
"Permitted Encumbrances" shall mean (i) those liens, encumbrances and
other matters affecting title to any Mortgaged Property listed in the Mortgage
Policies in respect thereof and found reasonably acceptable by the
Administrative Agent (which shall include all thereof specified in the Mort-
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gage Policies delivered to and accepted by the Collateral Agent pursuant to
Section 5.01(i)(iii)), (ii) as to any particular Mortgaged Property at any time,
such easements, encroachments, covenants, rights of way, minor defects,
irregularities or encumbrances on title which are not unusual with respect to
property similar in character to any such Mortgaged Property and which do not,
materially impair such Mortgaged Property for the purpose for which it is held
by the mortgagor thereof, or the lien held by the Collateral Agent, (iii)
municipal and zoning ordinances, which are not violated by the existing
improvements and the present use made by the mortgagor thereof of the Premises
(as defined in the respective Mortgage), (iv) general real estate taxes and
assessments not yet delinquent, (v) as to any Mortgage encumbering any PRMP, the
lien of the Intercompany Mortgage and (vi) such other items as the
Administrative Agent may consent to.
"Permitted Existing Indebtedness" shall have the meaning provided in
Section 6.19.
"Permitted Liens" shall have the meaning provided in Section 8.02(d).
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"Plan" shall mean any pension plan as defined in Section 3(2) of
ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of), any Credit Party or any ERISA Affiliate, and each
such plan for the five year period immediately following the latest date on
which any Credit Party or any ERISA Affiliate maintained, contributed to or had
an obligation to contribute to such plan.
"Pledge Agreements" shall mean and include the PXI Pledge Agreement,
the Borrower Pledge Agreement, the Xtra Pledge Agreement and the XM Pledge
Agreement.
"Pledged Securities" shall mean and include the Pledged Securities as
defined in each of the Pledge Agreements.
"Prime Lending Rate" shall mean the rate which Scotiabank announces
from time to time as its prime lending rate, the Prime Lending Rate to change
when and as such prime lending rate changes. The Prime Lending Rate is a
reference
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rate and does not necessarily represent the lowest or best rate actually charged
to any customer. Scotiabank may make commercial loans or other loans at rates of
interest at, above or below the Prime Lending Rate.
"PRMP" shall mean and include each Mortgaged Property located in
Puerto Rico.
"Puerto Rico Pledge Agreement" shall have the meaning provided in
Section 5.01(i)(ii).
"PXI" shall have the meaning provided in the first paragraph of this
Agreement.
"PXI Pledge Agreement" shall have the meaning provided in Section
5.01(f).
"PXI Senior Note Documents" shall mean and include the Existing PXI
Senior Note Documents and the Additional PXI Senior Note Documents.
"PXI Senior Notes" shall mean and include the Existing PXI Senior
Notes and the Additional PXI Senior Notes.
"PXI Subordinated Notes" shall mean any subordinated indebtedness of
PXI to any member of the Cisneros Group, the entire proceeds of which are
provided immediately to the Borrower and used immediately thereafter to prepay
Revolving Loans; provided that (i) no such Indebtedness shall be guaranteed by
any Subsidiary of PXI, (ii) no such Indebtedness shall be secured by any asset
of PXI or any of its Subsidiaries, (iii) any such Indebtedness shall be
subordinated to the Obligations to the satisfaction of the Administrative Agent,
(iv) no PXI Subordinated Notes shall mature prior to July 31, 2004, (v) no PXI
Subordinated Notes shall bear interest at a rate per annum in excess of 1% in
excess of the interest rate applicable to the Loans, (vi) the incurrence of such
Indebtedness is permitted pursuant to the terms of the PXI Senior Note Documents
and (vii) all other terms and conditions of such Indebtedness are in form and
substance reasonably satisfactory to the Administrative Agent. The incurrence of
PXI Subordinated Notes shall be deemed to be a representation and warranty by
PXI that all conditions thereto have been satisfied and that same is permitted
in accordance with the terms of this Agreement, which representation and
warranty shall be deemed to be a representation and warranty for all purposes
hereunder, including, without limitation, Sections 5.02 and 9.02.
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"Real Property" of any Person shall mean all of the right, title and
interest of such Person in and to land, improvements and fixtures, including
Leaseholds.
"Reduction Percentage" shall mean (a) initially zero, (b) at any time
there exists a Default or Event of Default, zero and (c) from and after the
first day of any fiscal quarter of PXI (such first day being the "Start Date")
commencing after the Restatement Effective Date to and including the last day of
such fiscal quarter, the applicable percentage set forth below to the extent
that the ratio (the "Leverage Ratio") of (x) Consolidated Indebtedness on the
last day of the second to last fiscal quarter ending prior to the Start Date to
(y) EBITDA for the period of four consecutive fiscal quarters (taken as a whole)
ending on the last day of the second to last fiscal quarter ending prior to the
Start Date equals the ratio set forth opposite such percentage, and no less than
5 Business Days before the Start Date, a certificate signed by the Chief
Financial Officer of PXI is delivered to the Administrative Agent certifying as
to the entitlement to, and the amount of, a Reduction Percentage (and providing
for the calculation thereof):
<TABLE>
<CAPTION>
Leverage Reduction
Ratio Percentage
---------- ----------
<S> <C>
4.5:1 or greater, 1/4% of 1%
but less than 5.0:1
4.0:1 or greater 1/2% of 1%
but less than 4.5:1
less than 4.0:1 3/4% of 1%
</TABLE>
"Reference Banks" shall mean and include Scotiabank and NationsBank.
"Refinancing" shall mean the issuance of the Additional PXI Senior
Notes and the repayment of all Loans under and as defined in the Original Credit
Agreement.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing reserve requirements.
"Regulation U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing margin requirements.
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"Reinvestment Amount" shall mean, with respect to any Asset Sale, the
amount specified in the Reinvestment Notice delivered by the Borrower in
connection therewith as the portion of the Net Cash Proceeds from such Asset
Sale that the Borrower and/or Xtra has used or intends to use to purchase,
construct or otherwise acquire Reinvestment Assets.
"Reinvestment Assets" shall mean any assets to be employed in the
business of the Borrower, Xtra and their Subsidiaries as permitted in Section
8.08.
"Reinvestment Election" shall have the meaning provided in Section
3.03(b)(I).
"Reinvestment Notice" shall mean a written notice signed by an
Authorized Officer of the Borrower stating that the Borrower and/or Xtra has
used or in good faith intends and expects to use the portion specified therein
of the Net Cash Proceeds of an Asset Sale to purchase, construct or otherwise
acquire Reinvestment Assets.
"Reinvestment Reduction Amount" shall mean, with respect to any Asset
Sale, the amount, if any, on the Reinvestment Reduction Date relating thereto by
which (a) the Reinvestment Amount in respect of such Asset Sale exceeds (b) the
aggregate amount thereof expended by the Borrower, Xtra and their Subsidiaries
to acquire Reinvestment Assets.
"Reinvestment Reduction Date" shall mean, with respect to any Asset
Sale, the earlier of (i) the date occurring one year after such Asset Sale and
(ii) the date on which the Borrower and/or Xtra shall have determined not to, or
shall have otherwise ceased to, proceed with the purchase, construction or other
acquisition of Reinvestment Assets with the related Reinvestment Amount.
"Release" shall mean disposing, discharging, injecting, spilling,
leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing and
the like, into or upon any land or water or air, or otherwise entering into the
environment.
"Reportable Event" shall mean an event described in Section 4043(c) of
ERISA with respect to a Plan other than those events as to which the 30-day
notice period is waived under Subsection .22, .23, .25, .27 or .28 of PBGC
Regulation Section 4043.
"Required Banks" shall mean, at any time, Banks whose Adjusted
Percentages exceed 50%.
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"Restatement Effective Date" shall have the meaning provided in
Section 5.01.
"Revolving Commitment" shall mean, with respect to each Bank, the
amount set forth opposite such Bank's name in Schedule I hereto directly below
the column entitled "Revolving Commitment", as same may be reduced from time to
time pursuant to Section 3.02, 3.03 and/or 9.
"Revolving Loan" shall have the meaning provided in Section 1.01(A).
"Revolving Note" shall have the meaning provided in Section 1.05(a).
"Revolving Outstandings" shall mean, at any time, the sum of the
outstanding principal amount of Revolving Loans and Swingline Loans at such time
plus the L/C Outstandings at such time.
"S&P" shall mean Standard & Poor's Corporation.
"Scotiabank" shall mean The Bank of Nova Scotia.
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto.
"Secured Parties" shall mean the Banks, the Agents, and the Collateral
Agent.
"Security Agreement Collateral" shall mean all "Collateral" as defined
in the Security Agreements.
"Security Agreements" shall mean and include (i) the Borrower Security
Agreement, (ii) the Subsidiary Security Agreements and (iii) any other security
agreement executed by PXI or any of its Subsidiaries pursuant to Section 7.10.
"Security Documents" shall mean and include the Security Agreements,
the Pledge Agreements, the Mortgages, the Intercompany Mortgages, the Puerto
Rico Pledge Agreement, any other document entered into by any Credit Party
granting a Lien in favor of the Collateral Agent on property in Puerto Rico and
after the execution and delivery thereof, each Additional Security Document.
"Senior Secured Debt" shall mean at any time (x) Consolidated
Indebtedness less (y) Indebtedness included in Consolidated Indebtedness that
(x) is expressly subordinated
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to the Obligations on a basis satisfactory to the Agents and/or (y) is
unsecured.
"Stated Amount" of each Letter of Credit shall mean the maximum
available to be drawn thereunder (regardless of whether any conditions for
drawing could then be met).
"Subordinated Intercompany Notes" shall mean the promissory notes,
copies of which are attached hereto as Exhibit J-2.
"Subordinated Intercompany Real Estate Note" shall mean a Subordinated
Intercompany Real Estate Note, a copy of which is attached hereto as Exhibit
J-1.
"Subsidiary" of any Person shall mean and include (i) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or other entity in which such Person directly or indirectly through
Subsidiaries, has more than a 50% equity interest at the time. Unless otherwise
expressly provided, all references herein to "Subsidiary" shall mean a
Subsidiary of PXI.
"Subsidiary Guarantor" shall mean any Subsidiary party to the
Subsidiary Guaranty on the Restatement Effective Date or any Subsidiary that,
after the Restatement Effective Date, executes a counterpart of the Subsidiary
Guaranty.
"Subsidiary Guaranty" shall have the meaning provided in Section
5.01(g).
"Subsidiary Security Agreement" shall meaning provided in Section
5.01(h).
"Swingline Loan" shall have the meaning provided in Section 1.01(B).
"Swingline Note" shall have the meaning provided in Section 1.05(a).
"Swingline Termination Date" shall mean the date which is three
Business Days prior to the Maturity Date.
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"Syndication Agent" shall mean NationsBank.
"Tape Expenditures" shall mean all cash payments in respect of the
acquisition by Blockbuster PR or Blockbuster VI of video tapes.
"Taxes" shall have the meaning provided in Section 4.04.
"Test Period" shall mean, with respect to any Test Period ending (x)
on or prior to January 31, 1998, a period (taken as one accounting period)
commencing on January 26, 1997 and ending on (i) May 17, 1997, (ii) August 9,
1997 and (iii) November 1, 1997, respectively, and (y) thereafter, the four
consecutive fiscal quarters of PXI (taken as one accounting period) then last
ended.
"Third Party Debt Repayments" shall mean any repayment by the
Borrower, Xtra or any of their Subsidiaries of principal on Indebtedness of the
Borrower, Xtra or any such Subsidiary provided that Third Party Debt Repayments
shall not include (i) any repayment on the Revolving Loans except to the extent
the Total Revolving Commitment has been permanently reduced in connection with
such repayment, (ii) any repayment on any other revolving loans of the Borrower,
Xtra or any Subsidiary other than any such repayment at the final maturity
thereof but then only to the extent such revolving loans have not been replaced
or refinanced through a new loan or credit facility, (iii) any repayment
financed through the incurrence of new Indebtedness (excluding any repayment
financed through the incurrence of Revolving Loans), (iv) any repayment of
Indebtedness with proceeds of the sale of assets or issuance of equity and (v)
any repayments of Capital Lease Obligations and/or other indebtedness, to the
extent in each case described in this clause (v) deducted in computing Adjusted
Cash Flow for the applicable period.
"Total Cash Interest Expense" shall mean for any period total interest
expense (net of interest income) of PXI and its Subsidiaries on a consolidated
basis (including, without limitation, the interest expense associated with
Capitalized Lease Obligations but excluding expense for interest not payable in
cash).
"Total Revolving Commitment" shall mean the sum of the Revolving
Commitments of each of the Banks.
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"Total Unutilized Revolving Commitment" shall mean, at any time, the
excess, if any, of (i) the Total Revolving Commitment over (ii) the sum of (x)
the outstanding principal amount of all Revolving Loans and Swingline Loans plus
(y) the L/C Outstandings, in each case at such time.
"Type" shall mean any type of Loan determined with respect to the
interest option applicable thereto, i.e., a Base Rate Loan or a Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code.
"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated plan benefits under
the Plan as of the close of its most recent plan year, determined in accordance
with Statement of Financial Accounting Standards No. 87, based upon the
actuarial assumptions used by the Plan's actuary in the most recent annual
valuation of the Plan, exceeds the fair market value of the assets allocable
thereto, determined in accordance with Section 412 of the Code.
"Unpaid Drawing" shall have the meaning provided in Section 2.04(a).
"Unutilized Revolving Commitment" for any Bank at any time shall
mean an amount (not less than zero) equal to the excess of (x) the Revolving
Commitment of such Bank over (y) the sum of (i) the aggregate outstanding
Revolving Loans of such Bank plus (ii) such Bank's Adjusted Percentage of the
L/C Outstandings plus (iii) in the case of Scotiabank, the aggregate outstanding
principal amount of Swingline Loans.
"Voting Stock" shall mean the shares of capital stock and any other
securities of any Person entitled to vote generally for the election of
directors of such Person or any other securities (including, without limitation,
rights and options), convertible into, exchangeable into or exercisable for, any
of the foregoing (whether or not presently exercisable, convertible or
exchangeable).
"Wholly-Owned Subsidiary" of any Person shall mean any Subsidiary of
such Person to the extent all of the capital stock or other ownership interests
in such Subsidiary, other than directors' qualifying shares, is owned directly
or indirectly by such Person.
"Written" or "in writing" shall mean any form of written communication
or a communication by means of telex, telecopier device, telegraph or cable.
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"XM Pledge Agreement" shall have provided in Section 5.01(f)(iv).
"Xtra" shall have the meaning provided in the first paragraph of this
Agreement.
"Xtra Pledge Agreement" shall have the meaning provided in Section
5.01(f)(iii).
SECTION 11. The Administrative Agent, etc.
11.01 Appointment. Each Bank hereby irrevocably designates and
appoints Scotiabank as Administrative Agent (such term as used in this Section
11 to include Scotiabank in its capacity as Collateral Agent), and NationsBank
as Syndication Agent, for such Bank to act as specified herein and in the other
Credit Documents, and each such Bank hereby irrevocably authorizes Scotiabank as
the Administrative Agent, and NationsBank as Syndication Agent, for such Bank,
to take such action on its behalf under the provisions of this Agreement and the
other Credit Documents and to exercise such powers and perform such duties as
are expressly delegated to the Administrative Agent or Syndication Agent or the
Agents, as the case may be, by the terms of this Agreement and the other Credit
Documents, together with such other powers as are reasonably incidental thereto.
The Administrative Agent and Syndication Agent each agrees to act as such upon
the express conditions contained in this Section 11. Notwithstanding any
provision to the contrary elsewhere in this Agreement, neither the
Administrative Agent nor the Syndication Agent shall have any duties or
responsibilities, except those expressly set forth herein or in the other Credit
Documents, or any fiduciary relationship with any Bank, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or otherwise exist against the Administrative Agent
or Syndication Agent. Provisions of this Section 11 are solely for the benefit
of the Administrative Agent, the Syndication Agent and the Banks, and no Credit
Party shall have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under this Agreement,
the Administrative Agent and Syndication Agent each shall act solely as agent of
the Banks and the Administrative Agent and Syndication Agent each does not
assume and shall not be deemed to have assumed any obligation or relationship of
agency or trust with or for any Credit Party.
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11.02 Delegation of Duties. The Administrative Agent and Syndication
Agent each may execute any of its duties under this Agreement or any other
Credit Document by or through agents or attorneys-in-fact and shall be entitled
to advice of counsel concerning all matters pertaining to such duties. The
Administrative Agent and Syndication Agent each shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care except to the extent otherwise required by Section 11.03.
11.03 Exculpatory Provisions. Neither Agent, nor any of its respective
officers, directors, employees, agents, attorneys-in-fact or affiliates shall be
(i) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Agreement (except for its or such
Person's own gross negligence or willful misconduct) or (ii) responsible in any
manner to any of the Banks for any recitals, statements, representations or
warranties made by any Credit Party or any of their respective officers
contained in this Agreement, any other Credit Document or in any certificate,
report, statement or other document referred to or provided for in, or received
by either Agent under or in connection with, this Agreement or any other Credit
Document or for any failure of any Credit Party or any of their respective
officers to perform its obligations hereunder or thereunder. Neither Agent shall
be under any obligation to any Bank to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement, or to inspect the properties, books or records of any Credit
Party. Neither Agent shall be responsible to any Bank for the effectiveness,
genuineness, validity, enforceability, collectibility or sufficiency of this
Agreement or any Credit Document or for any representations, warranties,
recitals or statements made herein or therein or made in any written or oral
statement or in any financial or other statements, instruments, reports,
certificates or any other documents in connection herewith or therewith
furnished or made by either Agent to the Banks or by or on behalf of any Credit
Party to either Agent or any Bank or be required to ascertain or inquire as to
the performance or observance of any of the terms, conditions, provisions,
covenants or agreements contained herein or therein or as to the use of the
proceeds of the Loans or of the existence or possible existence of any Default
or Event of Default.
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11.04 Reliance by Administrative Agent etc. Each Agent shall be
entitled to rely, and shall be fully protected in relying, upon any note,
writing, resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Credit Parties), independent accountants and other experts selected by either
Agent. Each Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Credit Document unless it shall first
receive such advice or concurrence of the Required Banks as it deems appropriate
or it shall first be indemnified to its satisfaction by the Banks against any
and all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. Each Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement and the
other Credit Documents in accordance with a request of the Required Banks, and
such request and any action taken or failure to act pursuant thereto shall be
binding upon all the Banks.
11.05 Notice of Default. Neither Agent shall be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless it has received notice from a Bank or the Borrower or any other
Credit Party referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event
that the Agent receives such a notice, it shall give prompt notice thereof to
the Banks. Each Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Required Banks, provided
that, unless and until an Agent shall have received such directions, such Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default or Event of Default as it shall deem
advisable in the best interests of the Banks.
11.06 Non-Reliance on Administrative Agent and Other Banks. Each Bank
expressly acknowledges that neither Agent nor any of their respective officers,
directors, employees, agents, attorneys-in-fact or affiliates have made any
representations or warranties to it and that no act by either Agent hereinafter
taken, including any review of the affairs of any Credit Party, shall be deemed
to constitute any representation or warranty by an Agent to any Bank. Each Bank
represents to the Agents that it has, independently and
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without reliance upon either Agent or any other Bank, and based on such
documents and information as it has deemed appropriate, made its own appraisal
of and investigation into the business, assets, operations, property, financial
and other conditions, prospects and creditworthiness of the Credit Parties and
made its own decision to make its Loans hereunder and enter into this Agreement.
Each Bank also represents that it will, independently and without reliance upon
either Agent or any other Bank, and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement,
and to make such investigation as it deems necessary to inform itself as to the
business, assets, operations, property, financial and other conditions,
prospects and creditworthiness of the Credit Parties. Neither Agent shall have
any duty or responsibility to provide any Bank with any credit or other
information concerning the business, operations, assets, property, financial and
other conditions, prospects or creditworthiness of any Credit Party which may
come into the possession of such Agent or any of their respective officers,
directors, employees, agents, attorneys-in-fact or affiliates.
11.07 Indemnification. The Banks agree to indemnify each Agent and
Syndication Agent in its capacity as such ratably according to the Banks'
aggregate Loans and Commitments, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
reasonable expenses or disbursements of any kind whatsoever which may at any
time (including, without limitation, at any time following the payment of the
Obligations) be imposed on, incurred by or asserted against such Agent in its
capacity as such in any way relating to or arising out of this Agreement or any
other Credit Document, or any documents contemplated by or referred to herein or
the transactions contemplated hereby or any action taken or omitted to be taken
by such Agent under or in connection with any of the foregoing, but only to the
extent that any of the foregoing is not paid by the Borrower, provided that no
Bank shall be liable to either Agent for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from the gross negligence or
willful misconduct of such Agent. If any indemnity furnished to either Agent for
any purpose shall, in the opinion of such Agent, be insufficient or become
impaired, the Agents may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional indemnity is
furnished. The
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agreements in this Section 11.07 shall survive the payment of all Obligations.
11.08 Individual Capacity. The Administrative Agent and the
Syndication Agent and their respective affiliates may make loans to, accept
deposits from and generally engage in any kind of business with any Credit Party
as though such Agent were not an Agent hereunder. With respect to the Loans made
by it and all Obligations owing to it, each Agent shall have the same rights and
powers under this Agreement as any Bank and may exercise the same as though it
were not an Agent and the terms "Bank" and "Banks" shall include the each Agent
in its individual capacity.
11.09 Resignation; Removal; Successors. Either Agent may resign as
Agent upon 20 days' notice to the Banks, and either Agent may be removed at any
time with or without cause by the Required Banks. Upon the resignation or
removal of the Administrative Agent, the Required Banks shall appoint from among
the Banks a successor Administrative Agent for the Banks subject to prior
approval by the Borrower (such approval not to be unreasonably withheld),
whereupon such successor agent shall succeed to the rights, powers and duties of
the Administrative Agent, and the term "Administrative Agent" shall include such
successor agent effective upon its appointment, and the resigning or removed
Administrative Agent's rights, powers and duties as the Administrative Agent
shall be terminated, without any other or further act or deed on the part of
such former Administrative Agent or any of the parties to this Agreement. After
the retiring Administrative Agent's resignation or removal hereunder as the
Administrative Agent, the provisions of this Section 11 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement.
SECTION 12. Miscellaneous.
12.01 Payment of Expenses, etc. The Borrower agrees to: (i) whether or
not the transactions herein contemplated are consummated, pay all reasonable
out-of-pocket costs and expenses of the Agents in connection with the
negotiation, preparation, execution and delivery of the Credit Documents and the
documents and instruments referred to therein and any amendment, waiver or
consent relating thereto (including, without limitation, the reasonable fees and
disbursements of White & Case and any local counsel) and of the Agents and each
of the Banks in connection with the enforcement of the Credit Documents and the
documents and instru-
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ments referred to therein (including, without limitation, the reasonable fees
and disbursements of counsel for the Agents and for each of the Banks); (ii) pay
and hold each of the Banks harmless from and against any and all present and
future stamp and other similar taxes with respect to the foregoing matters and
save each of the Banks harmless from and against any and all liabilities with
respect to or resulting from any delay or omission (other than to the extent
attributable to such Bank) to pay such taxes; and (iii) indemnify each Agent and
each Bank, their respective officers, directors, employees, representatives and
agents (each, an "indemnified person") from and hold each of them harmless
against any and all losses, liabilities, claims, damages or expenses incurred by
any of them as a result of, or arising out of, or in any way related to, or by
reason of, (a) any investigation, litigation or other proceeding (whether or not
any Bank is a party thereto) related to the entering into and/or performance of
any Credit Document or the use of the proceeds of any Loans hereunder or the
consummation of any other transactions contemplated in any Credit Document, (b)
any settlement entered into in connection with the foregoing to the extent such
settlement has been consented to by the Borrower or PXI, which consent shall not
be unreasonably withheld or (c) the actual or alleged presence of Hazardous
Materials on, or Released from, any Real Property of any Credit Party or any
Environmental Claim with respect to any Credit Party, in each case including,
without limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation, Environmental Claim or any
of such Credit Party's acts, omissions, business, operations or Real Property,
or other proceeding (but excluding any such losses, liabilities, claims, damages
or expenses to the extent incurred by reason of the gross negligence or willful
misconduct of the Person to be indemnified). To the extent that the undertaking
to indemnify and hold harmless set forth in this Section 12.01 may be
unenforceable because it is violative of any law or public policy as determined
by a final judgment of a court of competent jurisdiction, the Borrower shall
make the maximum contribution to the payment and satisfaction of each of the
liabilities giving rise to claims under the indemnification provisions of this
12.01 which is permissible under applicable law.
12.02 Right of Setoff. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence of an Event of Default, each Bank is hereby
authorized at any time or from time to time, without presentment, demand,
protest or other notice of any kind to the Bor-
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rower or to any other Person, any such notice being hereby expressly waived, to
set off and to appropriate and apply any and all deposits (general or special)
and any other Indebtedness at any time held or owing by such Bank (including,
without limitation, by branches and agencies of such Bank wherever located) to
or for the credit or the account of any Credit Party hereto against and on
account of the Obligations and liabilities of such Credit Party to such Bank
under this Agreement or under any of the other Credit Documents, including,
without limitation, all interests in Obligations of such Credit Party (but
excluding any amounts held by such Bank in a trustee capacity) purchased by such
Bank pursuant to Section 12.06(b), and all other claims of any nature or
description arising out of or connected with this Agreement or any other Credit
Document, irrespective of whether or not such Bank shall have made any demand
hereunder and although said Obligations, liabilities or claims, or any of them,
shall be contingent or unmatured.
12.03 Notices. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing and
mailed, telegraphed, telexed, telecopied, cabled or delivered, if to PXI, the
Borrower or Xtra, at the address specified opposite its signature below; if to
any Bank, at its address specified for such Bank on Schedule I hereto; or, at
such other address as shall be designated by any party in a written notice to
the other parties hereto. All such notices and communications shall be mailed,
telegraphed, telexed, telecopied, or cabled or sent by overnight courier, and
shall be effective when received.
12.04 Benefit of Agreement. (a) This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided that no Credit Party may assign or
transfer any of its rights or obligations hereunder (except as expressly
provided herein) without the prior written consent of the Banks. Each Bank may
at any time grant participations in any of its rights hereunder or under any of
the Notes to a Person that is a commercial bank, other financial institution,
mutual fund or '"Accredited Investor" as such term is defined in Regulation D of
the Securities Act of 1933, as amended, provided that in the case of any such
participation, the participant shall not have any rights under this Agreement or
any of the other Credit Documents (the participant's rights against such Bank in
respect of such participation to be those set forth in the agreement executed by
such Bank in favor of the participant relating thereto) and all amounts payable
by any Borrower hereunder shall be
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determined as if such Bank had not sold such participation, except that the
participant shall be entitled to the benefits of Sections 1.10, 1.11, 2.04 and
4.04 of this Agreement to would be entitled to such benefits if the
participation had not been entered into or sold, and provided further, that no
Bank shall transfer, grant or assign any participation under which the
participant shall have rights to approve any amendment to or waiver of this
Agreement or any other Credit Document except to the extent such amendment or
waiver would (i) extend the final scheduled maturity of any Loan or Note in
which such participant is participating (it being understood that any waiver of
any prepayment of Loans shall not constitute an extension of the final maturity
date) or reduce the rate or extend the time of payment of interest or Fees
thereon (except in connection with a waiver of the applicability of any
post-default increase in interest rates), or reduce the principal amount
thereof, or increase such participant's participating interest in any Commitment
over the amount thereof then in effect (it being understood that a waiver of any
Default or Event of Default or of a mandatory reduction in the Total Commitment,
or a mandatory prepayment, shall not constitute a change in the terms of any
Commitment), (ii) release all or substantially all of the Collateral (except as
expressly provided herein) or (iii) consent to the assignment or transfer by any
Credit Party of any of its rights and obligations under this Agreement (except
as expressly provided herein or therein).
(b) Notwithstanding the foregoing, (x) any Bank may assign all or a
portion of its Revolving Commitment (and the outstanding Revolving Loans
thereunder) and its rights and obligations hereunder to its parent company
and/or any affiliate of such Bank which is at least 50% owned by such Bank or
its parent company or to one or more Banks and (y) any Bank may, after
consultation with, but with no obligation to obtain the consent of, PXI, assign
a portion, in an amount equal to at least the Minimum Assignment Amount (or the
remaining balance thereof if less) of its Revolving Commitment and its rights
and obligations hereunder to a Person that is a commercial bank, other financial
institution, mutual fund or "Accredited Investors" as such term is defined in
Regulation D of the Securities Act of 1933, as amended (each an "Eligible
Assignee"), each of which Eligible Assignees to become a party to this Agreement
as a Bank prior to or after the Restatement Effective Date by executing an
assignment agreement in the form of Exhibit K hereto, appropriately completed
(an "Assignment Agreement") with the assigning Bank, provided that, in each
case, (i) at such time Schedule I shall be deemed to have been modified to
reflect the Loans
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and/or Commitments of such new Bank and of the existing Banks, (ii) if requested
by such new Bank or the assigning Bank, the Borrower shall issue new Notes to
such new Bank and to the assigning Bank in conformity with the requirements of
Section 1.05, and (iii) the Administrative Agent shall have received at the time
of each such assignment from either the assigning or assignee Bank the payment
of a nonrefundable assignment fee of $5,000. To the extent of any assignment
pursuant to this Section 12.04(b), the assigning Bank shall be relieved of its
obligations hereunder with respect to its assigned Loans and/or Commitment. No
Bank may assign all or a portion of its Revolving Commitment to an Eligible
Assignee not already a Bank hereunder unless the Letter of Credit Issuer shall
have consented in writing to such assignment.
(c) Notwithstanding any other provisions of this Section 12.04, no
transfer or assignment of the interests or obligations of any Bank hereunder or
any grant of participations therein shall be permitted if such transfer,
assignment or grant would require any Borrower to file a registration statement
or qualify an indenture with the SEC or to qualify the Loans under the "Blue
Sky" laws of any State.
(d) Each Bank initially party to this Agreement hereby represents, and
each Person that becomes a Bank pursuant to an assignment permitted by this
Section 12.04 will, upon its becoming party to this Agreement, represent that it
is a commercial lender, other financial institution or other "Accredited
Investor" which makes and/or invests in loans in the ordinary course of its
business and that it will make or acquire Loans or participations for its own
account in the ordinary course of such business, provided that, subject to the
preceding clauses (a) and (b), the disposition of any promissory notes or other
evidences of or interests in Indebtedness held by such Bank shall at all times
be within its exclusive control.
12.05 No Waiver; Remedies Cumulative. No failure or delay on the part
of the Administrative Agent or any Bank in exercising any right, power or
privilege hereunder or under any other Credit Document and no course of dealing
between any Credit Party and either Agent or any Bank shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or under any other Credit Document preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights and remedies herein expressly provided are
cumulative and not exclusive of any rights or remedies which each Agent or any
Bank would otherwise have. No notice to or demand on any Credit Party
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in any case shall entitle any Credit Party to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the rights of
the Agents or the Banks to any other or further action in any circumstances
without notice or demand.
12.06 Payments Pro Rata. (a) The Administrative Agent agrees that
promptly after its receipt of each payment from or on behalf of any Borrower in
respect of any Obligations, it shall, except as otherwise provided in this
Agreement, distribute such payment to the Banks (other than any Bank that has
consented in writing to waive its pro rata share of such payment) pro rata based
upon their respective shares, if any, of the Obligations with respect to which
such payment was received.
(b) Each of the Banks agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans, Unpaid Drawings or Fees, of a sum which with respect to the
related sum or sums received by other Banks is in a greater proportion than the
total of such Obligation then owed and due to such Bank bears to the total of
such Obligations then owed and due to all of the Banks immediately prior to such
receipt, then such Bank receiving such excess payment shall purchase for cash
without recourse or warranty from the other Banks an interest in the Obligations
in such amount as shall result in a proportional participation by all of the
Banks in such amount, provided that if all or any portion of such excess amount
is thereafter recovered from such Bank, such purchase shall be rescinded and the
purchase price restored to the extent of such recovery, but without interest.
12.07 Calculations; Computations. (a) The financial statements to be
furnished to the Banks pursuant hereto shall be made and prepared in accordance
with GAAP consistently applied throughout the periods involved (except as set
forth in the notes thereto or as otherwise disclosed in writing by any Borrower
to the Banks), provided that, except as otherwise specifically provided herein,
all computations determining compliance with Section 8, including definitions
used therein, shall utilize accounting principles and policies in effect at the
time of the preparation of, and in conformity with those used to prepare, the
historical financial statements delivered to the Banks pursuant to Section
6.10(b) provided that FAS 109 shall be utilized in making all
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such determinations. At any time the computations determining compliance with
Section 8 utilize accounting principles or treatments different from those
utilized in the financial statements then being furnished to the Banks pursuant
to Section 7.01, such financial statements shall be accompanied by
reconciliation work-sheets.
(b) All computations of interest and Fees hereunder shall be made on
the actual number of days elapsed over a year of 360 days.
12.08 Governing Law; Submission to Jurisdiction; Venue. (a) This
Agreement and the other Credit Documents and the rights and obligations of the
parties hereunder and thereunder shall, except as otherwise provided in the
Mortgages or certain other Security Documents, be construed in accordance with
and be governed by the law of the State of New York. Any legal action or
proceeding with respect to this Agreement or any other Credit Document may be
brought in the courts of the State of New York or of the United States for the
Southern District of New York, and, by execution and delivery of this Agreement,
each Credit Party hereto hereby irrevocably accepts for itself and in respect of
its property, generally and unconditionally, the jurisdiction of the aforesaid
courts. Each Credit Party hereto hereby irrevocably designates, appoints and
empowers CT Corporation System with offices on the date hereof at 1633 Broadway,
New York, NY 10019 as its designee, appointee and agent to receive, accept and
acknowledge for and on its behalf, and in respect of its property, service of
any and all legal process, summons, notices and documents which may be served in
any such action or proceeding. The Administrative Agent agrees to use reasonable
good faith efforts to mail, by registered or certified mail, to the respective
Credit Party, at its address set forth opposite its signature below, copies of
any and all legal process, summons, notices and documents mailed or delivered to
CT Corporation System in connection with the immediately preceding sentence;
provided that the failure of any Credit Party to receive, for any reason, copies
of such correspondence shall not in any way affect the effectiveness of the
delivery of any legal process, summons, notice or documents delivered to CT
Corporation System. If for any reason such designee, appointee and agent shall
cease to be available to act as such, each Credit Party hereto agrees to
designate a new designee, appointee and agent in New York City on the terms and
for the purposes of this provision satisfactory to the Administrative Agent.
Each Credit Party hereto further irrevocably consents to the service of process
out of any of the aforementioned courts in any such action or proceeding by the
mailing of copies there-
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of by registered or certified mail, postage prepaid, to such Credit party, at
its address set forth opposite its signature below, such service to become
effective thirty days after such mailing. Nothing herein shall affect the right
of the Administrative Agent, any Bank or the holder of any Note to serve process
in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against any Credit Party in any other jurisdiction.
(b) Each Credit Party hereto hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with this
Agreement or any other Credit Document brought in the courts referred to in
clause (a) above and hereby further irrevocably waives and agrees not to plead
or claim in any such court that any such action or proceeding brought in any
such court has been brought in an inconvenient forum. Each Credit Party hereto
further waives any right it may have to trial by jury in any court or
jurisdiction, including without limitation those referred to in clause (a)
above, in respect of any matter arising out of or relating to this Agreement and
the other Credit Documents.
12.09 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with each Credit Party and
the Administrative Agent.
12.10 Headings Descriptive. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
12.11 Amendment or Waiver. Neither this Agreement nor any other Credit
Document nor any terms hereof or thereof may be changed, waived, discharged or
terminated unless such change, waiver, discharge or termination is in writing
signed by PXI and the Borrower and the Required Banks, provided that no such
change, waiver, discharge or termination shall, without the consent of each Bank
(other than a Defaulting Bank) affected thereby (or its Obligations being
directly affected in the case of the following clause (i)), (i) extend the final
scheduled maturity of any Unpaid Drawing, Loan or Note (it being understood that
any waiver of any prepayment of the Loans shall not constitute an extension of
the final maturity
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date), or reduce the rate or extend the time of payment of interest (other than
as a result of waiving the applicability of any post-default increase in
interest rates) thereon or Fees, or reduce the amount thereof, or increase the
Commitments of any Bank over the amount thereof then in effect (it being
understood that a waiver of any Default or Event of Default or of a mandatory
reduction in the Total Commitment, or mandatory prepayment, shall not constitute
a change in the terms of any Commitment of any Bank), (ii) release all or
substantially all of the collateral (except as expressly provided in the Credit
Documents), (iii) amend, modify or waive any provision of this Section, or
Section 9.01, 11.07, 12.01, 12.02, 12.04, 12.06 or 12.07 (b), (iv) reduce
the percentage specified in the definition of Required Banks (it being
understood that, with the consent of the Required Banks, additional extensions
of credit pursuant to this Agreement may be included in the determination of the
Required Banks on substantially the same basis as the Revolving Commitments are
included on the Restatement Effective Date), (v) consent to the assignment or
transfer by any Credit Party of any of its rights and obligations under any
Credit Document (except as expressly provided herein or therein). No provision
of Section 2 or Section 11 may be amended without the consent of the affected
Letter of Credit Issuer or affected Agent, respectively. All modifications and
amendments to this Agreement and to Schedules I and II described in Section
12.04 may be effective as described therein.
12.12 Survival. All indemnities set forth herein including, without
limitation, in Section 1.10, 1.11, 2.05, 4.04, 11.07 or 12.01 shall survive the
execution and delivery of this Agreement and the making and repayment of the
Loans and the satisfaction of all other Obligations.
12.13 Domicile of Loans. Each Bank may transfer and carry its Loans or
participations at, to or for the account of any branch office, subsidiary or
affiliate of such Bank, provided that no Borrower shall be responsible for costs
arising under Section 1.10, 1.11, 2.05 or 4.04 resulting from any such transfer
to the extent not otherwise applicable to such Bank prior to such transfer.
12.14 Registry. The Borrower hereby designates the Administrative
Agent to serve as the Borrower's agent, solely for purposes of this Section
12.14, to maintain a register (the "Register") on which it will record the
Commitments from time to time of each of the Banks, the Revolving Loans made by
each of the Banks and each repayment in respect of the principal amount of the
Revolving Loans of
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each Bank. Failure to make any such recordation, or any error in such
recordation shall not affect the Borrower's obligations in respect of such
Revolving Loans. With respect to any Bank, the transfer of the Commitments of
such Bank and the rights to the principal of, and interest on, any Revolving
Loan made pursuant to such Commitments shall not be effective until such
transfer is recorded on the Register maintained by the Administrative Agent with
respect to ownership of such Revolving Commitments and Revolving Loans and prior
to such recordation all amounts owing to the transferor with respect to such
Revolving Commitments and Revolving Loans shall remain owing to the transferor.
The registration of assignment or transfer of all or part of any Revolving
Commitments and Revolving Loans shall be recorded by the Administrative Agent on
the Register only upon the acceptance by the Administrative Agent of a properly
executed and delivered Assignment Agreement pursuant to Section 12.04(b).
Coincident with the delivery of such an Assignment Agreement to the
Administrative Agent for acceptance and registration of assignment or transfer
of all or part of a Revolving Loan, or as soon thereafter as practicable, the
assigning or transferor Bank shall surrender the Revolving Note evidencing such
Revolving Loan, and thereupon one or more new Revolving Notes in the same
aggregate principal amount shall be issued to the assigning or transferor Bank
and/or the new Bank. The Borrower agrees to indemnify the Administrative Agent
from and against any -and all losses, claims, damages and liabilities of
whatsoever nature which may be imposed on, asserted against or incurred by the
Administrative Agent in performing its duties under this Section 12.14.
SECTION 13. Guaranty.
13.01 The Guaranty. In order to induce the Banks to enter into this
Agreement and to extend credit hereunder and in recognition of the direct
benefits to be received by each Guarantor from the proceeds of the Loans and the
issuance of the Letters of Credit, each Guarantor hereby agrees with the Banks
as follows (for purposes of this Section 13, Guarantor shall mean PXI and Xtra):
each Guarantor hereby unconditionally and irrevocably, jointly and severally,
guarantees as primary obliger and not merely as surety the full and prompt
payment when due, whether upon maturity, by acceleration or otherwise, of any
and all indebtedness of the Borrower to the Banks. If any or all of the
indebtedness of the Borrower to the Banks becomes due and payable hereunder,
each Guarantor, jointly and severally, unconditionally promises to pay such
indebtedness to the Banks, or order, on
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demand, together with any and all reasonable expenses which may be incurred by
any Agent or the Banks in collecting any of the indebtedness. The word
"indebtedness" is used in this Section 13 in its most comprehensive sense and
means any and all advances, debts, obligations and liabilities of the Borrower
arising in connection with this Agreement, heretofore, now, or hereafter made,
incurred or created, whether voluntarily or involuntarily, absolute or
contingent, liquidated or unliquidated, determined or undetermined, whether or
not such indebtedness is from time to time reduced, or extinguished and
thereafter increased or incurred, whether the Borrower may be liable
individually or jointly with others, whether or not recovery upon such
indebtedness may be or hereafter become barred by any statute of limitations,
and whether or not such indebtedness may be or hereafter become otherwise
unenforceable.
13.02 Bankruptcy. Additionally, each Guarantor unconditionally and
irrevocably, jointly and severally, guarantees the payment of any and all
indebtedness of the Borrower to the Banks whether or not due or payable by such
Borrower upon the occurrence in respect of the Borrower of any of the events
specified in Section 9.05, and unconditionally and irrevocably, jointly and
severally promises to pay such indebtedness to the Banks, or order, on demand,
in lawful money of the United States.
13.03 Nature of Liability. The liability of each Guarantor hereunder
is exclusive and independent of any security for or other guaranty of the
indebtedness of the Borrowers whether executed by such Guarantor, any other
Guarantor, any other guarantor or by any other party, and the liability of each
Guarantor hereunder shall not be affected or impaired by (a) any direction as to
application of payment by the Borrower or by any other party, or (b) any other
continuing or other guaranty, undertaking or maximum liability of a guarantor or
of any other party as to the indebtedness of the Borrower, or (c) any payment on
or in reduction of any such other guaranty or undertaking, or (d) any
dissolution, termination or increase, decrease or change in personnel by the
Borrower, or (e) any payment made to the Agents or the Banks on the indebtedness
which the Agents or such Banks repay to the Borrower pursuant to court order in
any bankruptcy, reorganization, arrangement, moratorium or other debtor relief
proceeding, and each Guarantor waives any right to the deferral or modification
of its obligations hereunder by reason of any such proceeding.
13.04 Independent Obligation. The obligations of each Guarantor
hereunder are independent of the obligations
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of any other Guarantor, any other guarantor of the Borrower, and a separate
action or actions may be brought and prosecuted against each Guarantor whether
or not action is brought against any other Guarantor, any other guarantor of the
Borrower and whether or not any other Guarantor, any other guarantor or the
Borrower be joined in any such action or actions. Each Guarantor waives, to the
fullest extent permitted by law, the benefit of any statute of limitations
affecting its liability hereunder or the enforcement thereof. Any payment by the
Borrower or other circumstance which operates to toll any statute of limitations
as to the Borrower shall operate to toll the statute of limitations as to each
Guarantor.
13.05 Authorization. Each Guarantor authorizes the Agents and the
Banks without notice or demand (except as shall be required by applicable
statute and cannot be waived), and without affecting or impairing its liability
hereunder, from time to time to:
(a) change the manner, place or terms of payment of, and/or change or
extend the time of payment of, renew, increase, accelerate or alter, any of
the indebtedness (including any increase or decrease in the rate of
interest thereon), any security therefor, or any liability incurred
directly or indirectly in respect thereof, and the Guaranty herein made
shall apply to the indebtedness as so changed, extended, renewed or
altered;
(b) take and hold security for the payment of the indebtedness and
sell, exchange, release, surrender, realize upon or otherwise deal with in
any manner and in any order any property by whomsoever at any time pledged
or mortgaged to secure, or howsoever securing, the indebtedness or any
liabilities (including any of those hereunder) incurred directly or
indirectly in respect thereof or hereof, and/or any offset thereagainst;
(c) exercise or refrain from exercising any rights against the
Borrower or others or otherwise act or refrain from acting;
(d) release or substitute any one or more endorsers, guarantors, the
Borrower or other obligers;
(e) settle or compromise any of the indebtedness, any security
therefor or any liability (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and may subordinate
the payment
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of all or any part thereof to the payment of any liability (whether due or
not) of the Borrower to its creditors other than the Banks;
(f) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of any Borrower to the Banks regardless of what
liability or liabilities of the Guarantors or the Borrower remain unpaid;
and/or
(g) consent to or waive any breach of, or any act, omission or default
under, this Agreement or any of the instruments or agreements referred to
herein, or otherwise amend, modify or supplement this Agreement or any of
such other instruments or agreements.
13.06 Reliance. It is not necessary for any Agent or the Banks to
inquire into the capacity or powers of the Borrower or the officers, directors,
partners or agents acting or purporting to act on behalf of any of them, and any
indebtedness made or created in reliance upon the professed exercise of such
powers shall be guaranteed hereunder.
13.07 Subordination. Any indebtedness of the Borrower now or hereafter
owing to a Guarantor, is hereby subordinated to the indebtedness of the Borrower
owing to the Agents and the Banks, provided that payment may be made by the
Borrower on any such indebtedness owing to a Guarantor so long as the same is
not prohibited by this Agreement, and provided further, that if the
Administrative Agent so requests at a time when an Event of Default exists, all
such indebtedness of the Borrower to such Guarantor shall be collected, enforced
and received by such Guarantor as trustee for the Banks and be paid over to the
Banks on account of the indebtedness of the Borrower to the Banks, but without
affecting or impairing in any manner the liability of such Guarantor under the
other provisions of this Guaranty, and provided further that this Section 13.07
shall not apply to the Subordinated Intercompany Real Estate Note or other
Subordinated Intercompany Notes. Prior to the transfer by any Guarantor of any
note or negotiable instrument evidencing any indebtedness of the Borrower to
such Guarantor, such Guarantor shall mark such note or negotiable instrument
with a legend that the same is subject to this subordination.
13.08 Waiver. (a) Each Guarantor waives any right (except as shall be
required by applicable statute and cannot be waived) to require the
Administrative Agent or the Banks to (i) proceed against the Borrower, any other
Guarantor, any other guarantor or any other party, (ii) proceed against or
exhaust any security held from the Borrower, any
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other Guarantor, any other guarantor or any other party or (iii) pursue any
other remedy in the Administrative Agent's or the Banks' power whatsoever. Each
Guarantor waives any defense based on or arising out of any defense of the
Borrower, any other Guarantor, any other guarantor or any other party other than
payment in full of the indebtedness, including, without limitation, any defense
based on or arising out of the disability of the Borrower, any other Guarantor,
any other guarantor or any other party, or the unenforceability of the
indebtedness or any part thereof from any cause, or the cessation from any cause
of the liability of the Borrower other than payment in full of the indebtedness.
The Administrative Agent and the Banks may, at their election, foreclose on any
security held by the Administrative Agent, the Collateral Agent or the Banks by
one or more judicial or nonjudicial sales, whether or not every aspect of any
such sale is commercially reasonable (to the extent such sale is permitted by
applicable law), or exercise any other right or remedy the Administrative Agent
and the Banks may have against the Borrower or any other party, or any security,
without affecting or impairing in any way the liability of any Guarantor
hereunder except to the extent the indebtedness has been paid. Each Guarantor
waives any defense arising out of any such election by the Administrative Agent
and the Banks, even though such election operates to impair or extinguish any
right of reimbursement or subrogation or other right or remedy of such Guarantor
against the Borrower or any other party or any security.
(b) Each Guarantor waives all presentments, demands for performance,
protests and notices, including without limitation notices of nonperformance,
notices of protest, notices of dishonor, notices of acceptance of this Guaranty,
and notices of the existence, creation or incurring of new or additional
indebtedness. Each Guarantor assumes all responsibility for being and keeping
itself informed of the Borrower's financial condition and assets, and of all
other circumstances bearing upon the risk of nonpayment of the indebtedness and
the nature, scope and extent of the risks which such Guarantor assumes and
incurs hereunder, and agrees that the Administrative Agent and the Banks shall
have no duty to advise any Guarantor of information known to them regarding such
circumstances or risks.
(c) Until such time as all the Obligations have been paid in full in
cash or Cash Equivalents, each Guarantor hereby waives all rights of subrogation
which it may at any time otherwise have as a result of this Guaranty (whether
contractual, under Section 509 of the Bankruptcy Code, or otherwise) to the
claims of the Banks against the Borrower or
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any other guarantor of the Obligations and all contractual, statutory or common
law rights of reimbursement, contribution or indemnity from the Borrower or any
other guarantor which it may at any time otherwise have as a result of this
Guaranty.
13.09 Limitation on Enforcement. The Banks agree that this Guaranty
may be enforced only by the action of the Administrative Agent, in each case
acting upon the instructions of the Required Banks and that no Bank shall have
any right individually to seek to enforce or to enforce this Guaranty it being
understood and agreed that such rights and remedies may be exercised by the
Administrative Agent for the benefit of the Banks upon the terms of this
Agreement. The Banks further agree that this Guaranty may not be enforced
against any director, officer, employee or stockholder of any Guarantor.
13.10 Rights of Contribution. Without in any manner modifying its
obligations to the Banks under this Guaranty, to the extent that any Guarantor
makes any payment under this Guaranty in respect of any indebtedness (other than
indebtedness of any Subsidiary of such Guarantor) that is in excess of its
Percentage of the aggregate payments made by all Guarantors under this Guaranty
in respect of such indebtedness, then such Guarantor shall have a right of
contribution from each other Guarantor whose payments, if any, in respect of
such indebtedness are less than its percentage of the aggregate payments made by
all Guarantors under this Guaranty in respect of such indebtedness in an amount,
and with the effect, that after giving effect to any such contribution right,
such Guarantor shall be responsible only for its Percentage of all payments made
hereunder by all Guarantors in respect of such indebtedness. As used in this
Section 13.10, a Guarantor's Percentage shall mean the percentage obtained by
dividing (i) the amount by which the present fair saleable value of its assets
on the date of this Guaranty exceeds its liabilities on such date (without
giving effect to this Guaranty) (such excess for such Guarantor, its "Net
Worth") by (ii) the aggregate Net Worth of all Guarantors at such time.
13.11 Post Closing Actions. Notwithstanding anything to the contrary
contained in this Agreement or the other Credit Documents, the parties hereto
acknowledge and agree that:
(a) Depository Account Agreement. The Borrower shall not be required
to have authorized, executed and delivered the depository account agreement
on the
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<PAGE> 132
Restatement Effective Date, but instead if the effective date of the Puerto
Rico Commercial Transactions Act (Act No. 241 enacted on September 19,
1996) does not occur on or prior to July 2, 1997, then the Borrower shall
authorize, execute and deliver a depositary account agreement satisfactory
in form and substance to the Administrative Agent and the Borrower, among
the Borrower, the Collateral Agent and a depository bank organized under
the laws of the Commonwealth of Puerto Rico and having an office in Puerto
Rico, within 60 days of receipt of a written request from the
Administrative Agent that the Borrower do so, provided that no such request
may be made by the Administrative Agent prior to July 2, 1997.
(b) Mortgage Amendments. The amendments to the Mortgages with respect
to Mortgaged Properties located in the U.S. Virgin Islands shall not be
required to be delivered by the Borrower on the Restatement Effective Date
but shall instead be required to be delivered by the Borrower within 60
days following the Restatement Effective Date.
(c) Intellectual Property. The Borrower shall not be required to
deliver any additional assignments of security interests relating to
intellectual property on the Restatement Effective Date provided that the
Borrower shall deliver such additional assignments of security interests
relating to intellectual property as the Administrative Agent may request
in form and substance satisfactory to the Administrative Agent within 30
days of receipt of a written request from the Administrative Agent to do
so.
(d) Insurance Certificates. The Borrower shall not be required to
deliver all of the evidence of insurance complying with the requirements of
Section 7.09, instead the Borrower will deliver, within 30 days following
the Restatement Effective Date to the Agents, evidence of insurance in form
and substance satisfactory to the Agents, which evidence of insurance shall
comply with the requirements of Section 5.01(k).
All conditions precedent and representations contained in this
Agreement and the other Credit Documents shall be deemed modified to the extent
necessary to effect the foregoing (and to permit the taking of the actions
described above within the time periods required above, rather than as elsewhere
provided in the Credit Documents); provided, that (x) to the extent any
representation and warranty would not
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be true because the foregoing actions were not taken on the Restatement
Effective Date, the respective representation and warranty shall be required to
be true and correct in all material respects at the time the respective action
is taken (or was required to be taken) in accordance with the foregoing
provisions of Section 13.11 and (y) all representations and warranties relating
to the Security Documents shall be required to be true immediately after the
actions required to be taken by Section 13.11 have been taken (or were required
to be taken). The acceptance of the benefits of each Credit Event shall
constitute a representation, warranty and covenant by the Borrower to each of
the Banks that the actions required pursuant to this Section 13.11 will be taken
within the relevant time periods referred to in this Section 13.11 and that, at
such time, all representations and warranties contained in this Agreement and
the other Credit Documents shall then be true and correct without any
modification pursuant to this Section 13.11. Any failure to comply with the
requirements of this Section 13.11 shall constitute a breach of covenant by the
Borrower (including, without limitation, for purposes of Section 9.03 of this
Agreement).
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<PAGE> 134
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Agreement to be duly executed and delivered as of the date
first above written.
Address for Notices: PUEBLO XTRA INTERNATIONAL,
1300 N.W. 22nd Street INC.
Pompano Beach, FL 33069
Tel: (954) 977-2500 By /s/ William T. Keon III
Fax: (954) 979-5770 -------------------------------------
Attn: Chief Financial Officer Name: William T. Keon III
Title: President
Address for Notices: PUEBLO INTERNATIONAL, INC.
1300 N.W. 22nd Street
Pompano Beach, FL 33069 By /s/ William T. Keon III
Tel: (954) 977-2500 -----------------------------------
Fax: (954) 979-5770 Name: William T. Keon III
Attn: Chief Financial Officer Title: President
Address for Notices: XTRA SUPER FOOD CENTERS, INC.
1300 N.W. 22nd Street
Pompano Beach, FL 33069 By /s/ William T. Keon III
Tel: (954) 977-2500 -------------------------------------
Fax: (954) 979-5770 Name: Willaim T. Keon III
Attn: Chief Financial Officer Title: President
THE BANK OF NOVA SCOTIA, as
Administrative Agent and a Bank
By /s/ F.C.H. Ashby
------------------------------------
Name: F.C.H. Ashby
Title: Senior Manager Loan Operatons
NATIONSBANK, N.A. (SOUTH), as
Syndication Agent and a Bank
By /s/
------------------------------------
Name:
Title: Senior Vice President
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<PAGE> 135
[ARTICLE] 5
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS OF
THE COMPANY'S FORM 10-Q FOR THE 16 WEEKS ENDED MAY 17, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
[/LEGEND]
<TABLE>
<S> <C>
[PERIOD-TYPE] 4-MOS
[FISCAL-YEAR-END] JAN-31-1998
[PERIOD-END] MAY-17-1997
[CASH] 10,310
[SECURITIES] 0
[RECEIVABLES] 2,968
[ALLOWANCES] 0
[INVENTORY] 58,486
[CURRENT-ASSETS] 97,010
[PP&E] 219,724
[DEPRECIATION] (82,928)
[TOTAL-ASSETS] 507,802
[CURRENT-LIABILITIES] 138,309
[BONDS] 282,804
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 0
[OTHER-SE] 28,191
[TOTAL-LIABILITY-AND-EQUITY] 507,802
[SALES] 297,192
[TOTAL-REVENUES] 297,192
[CGS] (219,701)
[TOTAL-COSTS] (69,713)
[OTHER-EXPENSES] (1,969)
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] (8,734)
[INCOME-PRETAX] (2,925)
[INCOME-TAX] 579
[INCOME-CONTINUING] (2,346)
[DISCONTINUED] 0
[EXTRAORDINARY] (2,444)
[CHANGES] 0
[NET-INCOME] (4,790)
[EPS-PRIMARY] 0
[EPS-DILUTED] 0
</TABLE>
